Earnings-related pensions ensure a reasonable consumption level

The aim of the benefits under the earnings-related pension scheme is to ensure a reasonable purchasing power in various stages of life.

The earnings-related pension scheme includes the following benefits:

  • the old-age pension,
  • the partial old-age pension,
  • the disability pension,
  • the years-of-service pension,
  • the part-time pension,
  • rehabilitation benefits, and
  • the survivors’ pension.

The disability pension and the rehabilitation allowance can be paid as partial pensions. New part-time pensions have not been granted as of the beginning of 2017. The first years-of-service pensions have been granted as of February 2018.

Number of pension recipients at the end of 2017

Men Women Total
All pension benefits 666,600  818,000  1,484,600
Pensions in one’s own right  655,600  787,300  1,442,900
Old-age pension  574,000 704,900  1,278,900
Partia old-age pension 6,800 4,900 11,700
Part-time pension 2,800 4,400 7,200
Disability pension  71,900  72,700  144,600
Special pension for farmers   4,100   7,900  12,000
Surviving spouse’s pension  40,400  212,400  252,700
Orphan’s pension   6,500  6,300  12,800

An individual can get different pension benefits at the same time, so the figures cannot be added up. In the figures for ‘All pension benefits’, an individual is included only once.

Earnings-related pensions accrue from work

Pension accrues based on annual earnings and an accrual rate. The earnings-related pension accrues at a rate of 1.5 per cent of the annual gross earnings as of age 17 until the age when the insurance obligation ends. Pension accrues also for

  • unpaid periods of earnings-related social security benefits,
  • periods of home care of one’s own children under the age of three, and
  • studies leading to a degree.

When calculating the pension, the earnings that the pension is based on are adjusted with a wage coefficient. The pension is adapted to the extended life expectancy with the life expectancy coefficient.

The pension is calculated based on the earnings-related pension acts that were in force when working. The pension reform that came into effect at the beginning of January 2017 changed some of the rules. For example, the accelerated accrual rate for older employees has been abolished and the wage earner’s share of the pension contribution is no longer deduced from the pensionable earnings. The pension that has been earned before 2017 is calculated based on the acts that were in force at any given time before 2017.

The disability pension consists of the pension accrued during the work history and a projected pension component that is calculated from the beginning of the year of the pension contingency to the age group’s retirement age. The insured has the right to the projected pension component if their earnings total at least 17,480.28 euros (in 2018) during the ten years before the year in which the disability pension started. As a rule, the projected pension component is determined on the basis of the average earnings for five years before retirement.

In some cases, the public sector accrual rates differ from the private sector rates.

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No unemployment pensions

Unemployment pensions are no longer granted or paid out. The last unemployment pensions were granted in 2011 to people born in 1949. The unemployment pensions have become old-age pensions at the age of 63 or, in some special cases, at the age of 65.

Previously, the unemployment pension was a significant route to early retirement. From the early 1990s to 2009, more than 10,000 people retired on an unemployment pension each year.

The long-term unemployment benefits are no longer paid from the pension scheme but from the unemployment protection scheme. The income of the long-term unemployed is ensured with additional days of the unemployment allowance.

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OUR EXPERTS IN THIS AREA: SUVI RITOLA, JUHA KNUUTI