Pensioners’ Income and Sources of Income

Earnings-related and national pensions are the most important sources of income for pensioner households. In the last twenty years, the share of earnings-related pensions of gross income has increased while the share of national pensions has declined. In 1995, the share of earnings-related pensions received in one’s own right was 44 per cent and the share of national pensions nearly 15 per cent. In 2014, the share of statutory pension provision of the gross income was 62 per cent on average. The share of earnings-related pensions of the gross income was 54 per cent and the share of survivors’ pensions within the earnings-related pension system was 3 per cent.  The share of the national and the guarantee pension of the gross income was about 5 per cent.

Capital income has risen to more than 20 per cent of the gross income. Approximately half of the capital income is net housing income that depicts the value of living in occupier-owned housing.

Income from work and self-employment and other income account for the remaining income share. Other income paid to pension recipients include, among other things, the housing allowance for pensioners and various care allowances paid by the Social Insurance Institution of Finland (Kela).

When paid taxes and contributions are deducted from and received income transfers are added to the gross income, the person’s disposable income is left. On average, pensioner households paid 18 per cent of their income in taxes and social contributions.

The income depends on the household size and structure

The income of households of different sizes may not be directly comparable. The income of a single pensioner compared to that of a married or cohabiting pensioner is not the same, even if the total income of the households are of equal size. This is due to scale advantages in consumption: two adults manage with less money together than separately.

In order to be able to compare households that vary in terms of size and structure, we must convert the household income on the consumption unit scale to a member-specific equivalent income. On the OECD consumption scale, the 1st adult receives the weighting 1, the other adults the weighting 0.5 and the children the weighting 0.3 each. When the disposable income of the household’s members is added and divided by the combined weighting of the household members, the result is the members-specific equivalent income.

Average income of pensioners

In 2009, the income available to pensioner households per consumption unit has risen by one third during the period from 1995 to 2015. The average pension of those who have been retired without interruptions from 1995 to 2015 has grown in real terms by 21 per cent.  The available income and consumption  power of pensioner households has grown by nearly 50% in 20 years. During the review period, the income of pensioner households has more than doubled.

In 2014, the average annual equivalent income of pensioner households was 27,700 euros. That means roughly 2,300 euros/month. From 1995 to 2014, the equivalent income per consumption unit has grown by 48 per cent.

Also when measured in terms of consumption, the income of retirees has improved. From 1995 to 2012, the consumption of pensioner households has grown in real terms by 45 per cent. During the entire review period, pensioner households consumed a smaller portion of their income than did working-age or non-working households. In other words, retirees save more than others. The saving rate has remained on the same level throughout the review period.

The gender gap in pension level has narrowed. Women’s total pension has risen more than men’s. In 1995, women’s total pension was 73 per cent of men’s pensions. In 2015, the same figure was 78 per cent. The gap has narrowed mainly because women work increasingly more. As a result, women’s earnings-related pensions grow faster than men’s.

Pensioners’ poverty risk

Pensioners’ financial position in society can be reviewed through the concept of the poverty risk. The poverty limit officially applied by the EU has been set at 60 per cent of the equivalent median income of all households. The OECD uses a poverty limit of 50 per cent.

When the disposable income of a person remains below the set poverty risk, the person is defined as poor. The poverty risk is calculated through the proportion of poor people in the population.

When using the limit of 60 per cent of the median income, 12.8 per cent of the retirees in Finland were poor in 2014. The ratio was at the same level as that of the overall population. When using the 50 per cent limit, approximately 4 per cent were poor. The youngest retirees are the poorest when measured in terms of the equivalent income and consumption.

Retirees in single households have a clearly higher poverty risk than those with a family. When measured in terms of consumption, the income of single retirees is weaker than that of retirees with a family. In 2014, 27 per cent of single retirees were poor, while the equivalent share of retirees with a family was only 3 per cent. As many as 59 per cent of retirees under the age of 55 who live in single-person households were poor in 2014. It is also common for retirees aged above 75 to be poor. Single female retirees who are above the age of 75 form the largest group of poor retirees.

Poverty in Finland in international comparison

In an international comparison, Finnish pensioners are slightly better off than pensioners in Europe on average. A considerably small number of Finnish retirees are poor. The income gaps between retirees in Finland are smaller than in EU countries on average, but the relative income of retirees compared to that of the working-age population is slightly below the average EU level.

The relative poverty risk of retirees in Finland is close to the EU poverty risk level. However, the poverty risk of elderly, female and single retirees is higher than average. When measured in terms of subjective experiences,  the income of retirees in Finland is clearly above the EU average.

Studies on pensioners’ economic welfare


Expert: Juha Rantala