The Finnish 2005 Pension Reform

More Pension for Social Benefits

As of the beginning of 2005, pension accrues based on earnings. Various earnings-related social benefits are also taken into consideration according to the amount of earnings that the benefits are based on. The concerned benefits include

  • unemployment, parenthood, adult training, rehabilitation and sickness allowances
  • compensation for loss of income paid on the basis of motor liability and workers’ compensation insurance
  • job alternation compensation.

No pension accrues for minimum level benefits, with the exception of the parenthood allowance.

When calculating the accrued pension, 75 per cent of the earnings that the unemployment allowance and the job alternation compensation is based on is taken into account. For other benefits, 65 per cent of the earnings that the benefit is based on is taken into account.

The parenthood allowance constitutes an exception in this respect. The earnings that the parenthood allowance is based on are raised to 117 per cent when calculating the pension accrued for the period during which the parent receives the parenthood allowance.

The parenthood allowance is exceptional also in that it is taken into consideration even for the period that it is paid to the employer: 17 per cent of the earnings that the allowance is based on is taken into account when calculating the pension.

Pension accrues also for

  • the child home care allowance paid until the child turns three years if the parent takes care of the child him or helself, and
  • studies for 3-5 years if they have led to a degree.

Both accrue pension on the basis of a computational monthly income which corresponds to about one fourth of the national average wage. The State finances the benefit.

Pension accrues annually at the rate of 1.5 per cent of the earnings on which social security benefits are based.