Early Retirement Pensions Cut and Lower Age Limits Increased
In connection with the 2005 reform, the individual early pension and the unemployment pension are abolished as pension types. The lower age limits for part-time pension and early old-age pension are raised to 58 and 62 years. Some amendments are also made to the determination of pensions.
Individual early retirement pension
Only wage earners and self-employed persons born before 1944, and under certain conditions also municipal employees born between 1944 and 1947, are entitled to individual early retirement pension.
Although this pension type is abolished, the possibility to grant a disability pension under the same criteria as the individual early retirement pension for those who have turned 60 is enacted in the law.
More lenient terms and conditions are applied to disability applications by persons born in 1944 or later as of age 60.
The primary alternative to disability pension is vocational rehabilitation. As a result of the reform, the insured are entitled to the right to vocational rehabilitation if their illness, handicap or injury threatens to cause incapacity for work within approximately five years and if vocational rehabilitation within the earnings-related pension scheme is feasible.
The earnings that form the basis for the projected pensionable service that is related to disability pensions are now determined based on the earnings during the last five years. The accrual percentage for projected pensionable service was set at 1.3 per cent for persons aged 50-63.
The disability pension of young people is increased depending on age once the pension has continued for 5 years. The highest increase in the 2005 act was 21 per cent.
If an employee becomes disabled after the age of 63, he or she will be granted only old-age or part-time pension.
Disability pensions are determined as described above when the pension contingency occurs in 2006 or later.
The unemployment pension ceases at the beginning of 2005 for those born in 1950 or later. The unemployment pension is replaced by the unemployment allowance, so-called additional days. Changes in pension acts do not affect unemployment pensions that began prior to 2006.
To receive the additional days of the unemployment benefit, the person must have turned 59 years and have a five year employment history during the preceding 15 years. The right to additional days continues until the age of 65, but at the age of 62, the person in question can select either the unemployment allowance or old-age pension. If the selection falls on the latter, no abate for early retirement is made to the old-age pension.
For people born before 1950, the requirements for unemployment pension continue to be 60 years of age and long-term and permanent unemployment. In addition, for those born before 1945, protective rules apply, thanks to which the requirements for unemployment pension remain unchanged.
The lower age limit for those born in 1947 or later is 58 years. The old-age pension accrual rate from the decrease in income dropped to 0.75 per cent, half of the previous accrual rate. For part-time work, pension accrues according to the regular pension accrual rates, i.e. at 1.9 and 4.5 per cent.
For those born in 1946 or earlier, the lower age limit is 56 years. Old-age and disability pension accrues from the decrease in earnings as before, at 1.5 per cent. Pension accrues for part-time work as according to previous rules, at 1.5 and 2.5 per cent. However, those born in 1946 or earlier can retire flexibly at age 63 without an abate for early retirement and without an integration of pensions.
Early old-age pension
After the reform, a person who has reached the age of 62 may retire on an early old-age pension. In that case, the pension is permanently reduced by 0.6 per cent per month. At its most, the abate for early retirement may reduce the old-age pension by 7.2 per cent (12 x 0.6).
The lower age limit for early old-age pension remains at 60 years for private-sector employees born in 1944 or earlier. Persons born before 1947 and working in the public sector, with five or less years to their old-age retirement age in 2004, may retire on an early old-age pension at any time. The abate for early retirement is 0.4 per cent for each month taken early, calculated from the individual old-age retirement age.
If a public-sector employee born before 1960 has more than five years to the old-age retirement age in 2004, he or she can retire on an early old-age pension three years prior to the individual retirement age. The abate for early retirement is 0.6 per cent for each month taken early.
Public-sector employees who have selected an occupation-specific retirement age may retire on an early old-age pension at age 62 at the earliest.