Division of costs
The administration of the earnings-related pension scheme is decentralised, with several actors in both the private and the public sectors. Earnings-related pensions are granted and paid by the pension provider with which the employee was last insured before retiring. The pension may be funded with several different pension providers if the insured has worked for many employers in the course of their working life. Each pension provider is responsible for their own pension component for as long as the pension is paid.
The pension provider that pays out the pension charges the other pension providers for the components that they are responsible for. The component is determined trough a cost distribution calculation carried out by the Finnish Centre for Pensions and according to the principle of the last provider.
The principles of cost distribution have been applied in the private sector since the Employees Pensions Act came into force under the regulations valid at each time. As of the beginning of 2004, most public sector pension providers also introduced the principle of the last provider and the cost distribution system.
Each year, the Finnish Centre for Pensions calculates the different pension providers’ components of the paid earnings-related pensions and the pensions accrued for unsalaried periods. It also transfers the State’s share of the pension benefits that have accrued for periods of taking care of one’s own children under the age of three and for studies leading to a degree to the pension providers.
In the distribution calculation, each pension paid out under the Employees Pensions Act or the Seafarer’s Pensions Act is divided into two components based on the principle of the partly funded financing technique; the funded pension component and the pooled component. The division is carried out for each individual pension. The funded component is always the responsibility of the pension provider that has insured the employment in question, but the pooled component is the joint responsibility of all pension providers.
Pensions under the Self-employed Persons’ Pensions Act and the Farmers’ Pensions Act are not funded. Pension providers that offer pension insurance for the self-employed share the costs of the pensions, and the Farmers’ Social Insurance Institution (Mela) finance pensions under teh Farmers’ Pensions Act. The State participates in the financing of the pensions under the Self-employed Persons’ Pensions Act, the Farmers’ Pensions Act and the Seafarer’s Pensions Act. Pension providers in the public sector are responsible for the costs of their statutory pension provision.
The pension providers give the Finnish Centre for Pensions detailed data on the pensions and related benefits that they have paid out. After that, the Finnish Centre for Pensions calculates how much each pension provider is liable for and tells them how much they are entitled to get or how much they need to pay in order to handle the money flow.