Impact of Life Expectancy Coefficient on Pensions
- When retiring on an old-age pension
- When retiring on a disability pension
- Estimated life expectancy coefficient used in estimates
- Life expectancy coefficient and national pension
When retiring on an old-age pension
The life expectancy coefficient determined for the birth-year cohort is applied to the entire old-age pension. The coefficient remains unchanged during the whole time spent in retirement.
A person retiring may be entitled to retire on an old-age pension at a younger age then 62. If he were to retire prior to the age of 62, the coefficient confirmed for the year in which his old-age pension begins will be applied to his pension. The coefficient will not change again when he reaches the age of 62.
If the retiree has been granted a pension prior to 2010, the life expectancy coefficient shall not be applied to his pension in payment. However, if he works during his retirement and earns new pension, and if he was born in 1948 or later, the life expectancy coefficient will be applied to the new pension earned. When the old-age pension earned for employment during retirement is granted after 2009, this part of the old-age pension will be adjusted with the life expectancy coefficient.
The life expectancy coefficient is applied to a disability pension when the pension contingency is in 2010 or later. The life expectancy coefficient for this pension will not change when the disability pension is converted to an old-age pension.
However, the life expectancy coefficient will be applied to any new old-age pension earned during the period on a disability pension when this part of the pension is granted at the old-age retirement age.
The disability pension is multiplied by the life expectancy coefficient when the pension starts. The amount of disability pension earned by the time of the pension contingency will be multiplied by the life expectancy coefficient issued for the cohort turning 62 during the year of the pension contingency. The life expectancy coefficient does not apply to the pension component for a projected pensionable service.
The life expectancy coefficient applied to the disability pension is thus permanently more lenient than the coefficient for those who continue working until the old-age retirement age: it is applied to only a part of the pension and it is determined according to the expected longevity of the older cohorts. If the longevity evolves as projected, the coefficient for younger cohorts would have a larger cutting effect.
Based on Statistics Finland’s population forecasts, the Finnish Centre for Pensions draws up estimates of the life expectancy coefficient to be used in projections of earnings-related pensions. The forecasts are updated after Statistics Finland publishes its population forecast, i.e. every three years.
The life expectancy coefficient is applied to the pension amount calculated for the pension record when the record includes an estimate of the insured persons’ pension until the retirement age. However, if the record includes a calculation of the earned pension only, as is the case for insured persons under the age of 50, the life expectancy coefficient has not been applied. The e-record includes an estimate also for persons under the age of 50, to which the life expectancy coefficient has been applied.
Estimates of the life expectancy coefficient based on the 2009 population forecast.
The life expectancy coefficient is not applied in the following cases:
- the pension recipient was born prior to 1948
- other than a part-time pension began prior to 2010
- disability began prior to 2010
- the disability pension is converted into an old-age pension
- an individual early retirement pension is converted into an old-age pension
- the unemployment pension is converted into an old-age pension
- a soldier’s pension right has come into force prior to 2010
- when calculating a private-sector registered supplementary pension.
The national pension affects the pension recipient’s total pension. National pension is paid in addition to an earnings-related pension if the latter amounts to less than EUR 1,000-1,200. The national pension is not adjusted with the life expectancy coefficient.
When the national pension begins, its amount is determined on the basis of the earnings-related pension amount. The national pension increases annually in line with the increase of consumer prices. From time to time, separate general increases are made to the pension level.
A pension recipient who receives a national pension gains approximately half of the reduction of the earnings-related pension caused by the life expectancy coefficient. A pensioner who receives the guarantee pension will be compensated in full for the impact of the life expectancy coefficient via the national pension and the guarantee pension.