Individual Pension Insurance and Long-term Saving
Supplementary pension may be accrued individually by taking out a voluntary pension insurance or signing a long-term savings contract.
The individual pension insurance may be taken out by the insured person himself or by the insured person’s spouse or employer. If the employer is the policyholder, the insured may not pay contributions to the insurance. A long-term savings account can be signed only by a natural person.
According to the Insurance Supervisory Authority, the number of individual pension insurance policies at the end of 2010 amounted to approximately 696,000 and the surrender value of the pension savings was approximately EUR 11 billion. Individual pension insurance policies have lost popularity in recent years; the number of new policies has declined compared to previous years.
Age limit of individual pensions and long-term savings accounts rise
In 2013, the retirement age of individual pensions or long-term savings accounts is raised from 63 years to 68 years. As of the beginning of 2013, the pension contributions of new contracts are tax-deductible only if the retirement begins at the earliest at the deferred old-age retirement age as stipulated in the Employees Pensions Act. This amendments concerns only new pension insurance and long-term savings contracts signed as of the beginnin gof 2013. If the pension insurance or long-term savings account was taken prior to 2013 and payments have been made prior to 2013, the old legislation shall apply.
An individual pension insurance or the savings of a long-term savings account are paid out to the policyholder as of an agreed age. However, in new contracts, the required age for payment of pension savings is the old-age retirement age (63 yrs) under the Employee Pensions Act.
The insurance can be agreed to be either a fixed-term or a lifelong insurance. The majority of individual pension insurances are fixed-term. The shortest repayment period in new contracts and individual pension insurance policies is 10 years.
An individual pension is not a hindrance for employment, and some of the persons drawing an individual pension are still in active employment. Usually, the insurance contract also includes life insurance provision for the event of the death of the insured person. In that case, the insurance savings are paid in predetermined parts to the insured person’s beneficiaries.
Savings returned in exceptional cases
The right of termination of an individual pension insurance and a long-term savings contract is limited. The individual pension insurance policy may be drawn on early in case of permanent disability. In case of unemployment of more than one year, the insured may draw the surrender value of the insurance policy, reduced by the administrative costs.
The termination practice differs from one company to another. In general, individual pension insurance policies which can be drawn on early on the basis of disability or unemployment presuppose that the insurance savings are covered by life insurance.
Individual pension insurance taken out by the employer for the employee does not necessarily include vesting of pension rights if the employment contract ends before the retirement age.
Determining the pension
The pension according to an individual pension insurance contract or a long-term savings contract which will become payable in due course is determined on the basis of the accumulated savings, i.e. paid contributions and their return. An individual pension insurance may be interest rate-linked or investment-linked.
The return on interest rate-linked pension insurance consists of the technical interest rate and a separate additional interest rate determined on the basis of the insurance company’s profit.
The return on investment-linked insurance is determined on the basis of the development of the value of the funds chosen by the policyholder. The risk of the return on and the maintenance of the insurance capital in investment-linked insurance is carried by the client. In contrast to bank deposits, the capital has no statutory deposit guarantee.
According to the Federation of Finnish Financial Services, individual pension insurance policies had accumulated insurance savings to a total of EUR 589 million in 2012. Of this amount, 73 per cent were paid into investment-linked insurance policies.