Disability Pension

Disability pension after period of sickness allowance

Income compensation for disability lasting for less than one year is paid by the Social Insurance Institution of Finland (Kela) in the form of a sickness allowance. When the work capacity has been reduced (due to illness, handicap or injury) for at least one year, the loss of income is compensated with a cash rehabilitation benefit or a disability pension paid by the pension provider and/or Kela. Compensation based on workers’ compensation insurance and motor liability insurance are primary in relation to the pension insurance.

A pension provider may grant a disability pension to an insured person who has reached the age of 17 but not the person’s retirement age (determined based on their birth year) . When the person reaches their retirement age, the disability pension will be converted into an old-age pension. In the national pension scheme, a disability pension may be granted to an insured person who is between the ages of 16 and 64 years.

The disability pension benefits of the earnings-related pension scheme are:

  • the cash rehabilitation benefit,
  • the partial disability pension,
  • the disability pension, and
  • the partial cash rehabilitation benefit.

Cash rehabilitation benefit during rehabilitation

A person who is temporarily incapable of work and whose handicap or illness is expected to improve through rehabilitation is granted a cash rehabilitation benefit during the rehabilitation period. A requirement for the cash rehabilitation benefit is that a treatment or rehabilitation plan has been drawn up for the applicant. The cash rehabilitation benefit amounts to the disability pension. If the insured person’s work ability is not restored, the cash rehabilitation benefit will be converted into a disability pension.

A permanent disability pension is often preceded by a fixed-term cash rehabilitation benefit. Of the disability pensions granted between 2012 and 2014, slightly more than 50 per cent were granted directly as permanent disability pensions. Correspondingly, nearly 50 per cent of the cash rehabilitation benefits are eventually converted into disability pensions.

Partial disability pension

A partial disability pension is paid if the work ability is reduced by at least two-fifths (if the work ability is reduced by at least three-fifths, the person will be granted a full disability pension). The partial disability pension is half of the insured person’s full disability pension.

The number of partial disability pension recipients is growing. Particularly in the public sector, partial disability pensions have become more common since the mid-1990s. Nevertheless, there are very few pensioners on a partial disability pension compared to the number of pensioners on a full disability pension. At the end of 2016, about 15 per cent of pensioners on a disability pension drew a partial disability pension.

Remaining working capacity and rehabilitation

In addition to medical factors, the insured person’s ability to get an income through reasonable, available work  will be considered when assessing their right to receive a disability pension. Factors such as education, previous work, age and place of residence are taken into account when making the assessment.

The definition of occupational disability is applied for the insured over the age of 6o in the private sector and for all insured in the public sector. Occupational disability refers to the lack of ability to perform occupation-related tasks.

Vocational rehabilitation arranged by pension providers takes precedence over the disability pension. The aim of rehabilitation within the earnings-related pension scheme is to promote the staying at or returning to work, and that way to reduce or at least postpone the need to retire on a disability pension.

Disability pension components

The disability pension consists of the pension accrued during the insured person’s work history and the projected pension component. The purpose of the projected pension component is to compensate the insured for the loss of income from the time of retirement on a disability pension to the retirement age. A significant part of young persons’ disability pensions is made up of the projected pension component. The fixed-term cash rehabilitation benefit and the disability pension granted until further notice are determined in the same way.

An insured person whose earnings have totalled at least 17,455.15 euros (in 2017 prices) during the 10 calendar years before the start of the disability pension has a right to receive the projected pension component.

The projected pension component is calculated from the beginning of the year of the pension contingency until the end of the month in which the person reaches their retirement age. If the retirement age for the most recently confirmed retirement age. For those born in 1965 or later, the projected pension component will end at age 65, which is the most recent confirmed retirement age (for those born in 1964).

In general, the projected pension component is determined based on the earnings during the five calendar years before the disability began.

Lump-sum increase based on age

Disability pensions that have continued for five years receive a permanent lump-sum increase. The increase was granted for the first time in 2010 to all disability pensions that had lasted for at least five years. The purpose of the lump-sum increase is to improve the level of disability pensions, particularly for the young.

The lump-sum increase is made when five years have passed since the beginning of the disability pension or the cash rehabilitation benefit. The amount of the increase depends on the age of the pension recipient. For those aged 23-31, the increase is 25 per cent. The increase is reduced by one percentage point per one year of age. If the pension is granted after the person has turned 50, no lump-sum increase is made.

Vocational rehabilitation extends working lives

Pension providers arrange vocational rehabilitation for persons insured under the earnings-related pension acts. The purpose of vocational rehabilitation is to prevent disability and improve chances to earn an income. To receive vocational rehabilitation arranged by a pension provider, the insured must have earned 34,910.29 euros (in 2017) for a period of five years before the disability began.

Vocational rehabilitation includes, for example, workplace rehabilitation and training. The pension provider pays a rehabilitation benefit during the rehabilitation period. Rehabilitation benefits are:

  • the rehabilitation allowance,
  • the partial rehabilitation allowance,
  • the rehabilitation increment, and
  • the rehabilitation assistance.

The most common is the rehabilitation allowance, which is the amount of the cash rehabilitation benefit, increased by 33 per cent. If, during the rehabilitation period, the employee earns more than half of their stabilized earnings, a partial rehabilitation allowance is paid. The partial rehabilitation allowance is half of the full rehabilitation allowance.

Approximately 14,500 persons participated in the vocational rehabilitation arranged by pension providers in 2015. The rehabilitation expenditure amounted to EUR 123 million.

In 2015, 5,900 rehabilitation programmes ended and 64 per cent of the rehabilitees returned to working life while 13 per cent retired. For the success of the rehabilitation it is significant that, of those who retired, 46 per cent retired on a partial rather than a full disability pension.

Earnings limits

A person drawing a full disability pension may earn a maximum of 40 per cent of the stabilised average earnings prior to retirement, and a person drawing a partial pension, 60 per cent.

The aim is to promote employment among recipients of a disability pension. According to a provisional act promoting the return to work, a person working while receiving a full or a partial disability pension can earn at least 737.45 euros/month (in 2017). The provisional act will be in force until the end of 2020. An increase in the minimum earnings limit offers better opportunities for low-income retirees on a disability pension to work or try to work.

When the earnings exceed the earnings limits, the pension payments are suspended for at least three months and no more than two years.

Of those drawing a full disability pension, more than 10 per cent are working, while the equivalent figure for those receiving a partial disability pension is 77 per cent. Partial disability pensions are more common in the public sector than in the private sector.