The Finnish 2005 Pension Reform

Implementing Wage Coefficient and Earnings-related Pension Index

The earnings-related pension is calculated in relation to the earned wages. The annual wages are converted to correspond to the level at the time of calculation. The amounts are converted by multiplying the old wages with the wage coefficient.

The wage coefficient is determined on the basis of the annual change of the wage and price level. In the coefficient, changes in wages weigh 80 per cent and changes in consumer prices 20 per cent.

The earnings-related pension index helps to retain the value of earnings-related pensions in payment. Pensions are raised according to the change in index at the beginning of January each year. The earnings-related pension index is determined on the basis of the annual change of the wage and price level. The weight of changes in earnings is 20 per cent and in changes of consumer prices 80 per cent.

The Ministry of Social Affairs and Health annually confirms the wage coefficient and the earnings-related pension index based on calculations by the Finnish Centre for Pensions.

Prior to 2005, there were two indexes. The indexes were linked to the age. The 2005 reform abolished this much criticized age-dependency. Now wages are raised according to the wage coefficient and all pensions according to the earnings-related pension index.

All pensions in payment are adjusted with the earnings-related pension index as of the beginning of 2005. When determining the pension, the former fifty-fifty index was used in certain cases until 2012.