Impact of Life Expectancy Coefficient on Pensions

 

When retiring on an old-age pension

The life expectancy coefficient determined for the birth-year cohort is applied to the entire old-age pension. The coefficient remains unchanged during the whole time spent in retirement.

Some people may be entitled to retire on an old-age pension at a younger age then 62. In that case, their pension will be adjusted with the coefficient confirmed for the year in which their old-age pension begins. The coefficient will not change again when they reach the age of 62.

If a retiree has been granted a pension before 2010, the life expectancy coefficient has not been applied to their pension in payment. If they work during retirement and earn new pension, and if they were born in 1948 or later, the life expectancy coefficient will be applied to the new pension earned.

When retiring on a disability pension

The life expectancy coefficient is applied to a disability pension when the person getting the pension has lost their ability to work in 2010 or later. The life expectancy coefficient for this pension will not change when the disability pension becomes an old-age pension.

The life expectancy coefficient will be applied to any new old-age pension earned during the period on a disability pension when this part of the pension is granted at the old-age retirement age.

The disability pension is multiplied by the life expectancy coefficient when the pension starts. The amount of the disability pension earned by the time of the pension contingency will be multiplied by the life expectancy coefficient issued for the age group that turns 62 during the year that the disability pension begins.

The life expectancy coefficient is applied to the earned pension but not to the projected pension component (from the time of disability to the time of reaching the retirement age). That means that the life expectancy coefficient applied to the disability pension is permanently more lenient than the coefficient for those who continue working until their retirement age: it is applied to only a part of the pension and it is determined according to the expected longevity of the older age groups. If the longevity develops as projected, the coefficient for younger age groups would cut the pensions more.

As of 2027, the total disability pension (including the projected pension component) will be adjusted with the life expectancy coefficient. The retirement age will be linked to life expectancy and the life expectancy coefficient will be mitigated.

Estimated life expectancy coefficients used in projections

Based on Statistics Finland’s population forecasts, the Finnish Centre for Pensions projects  the life expectancy coefficient to be used in projections of earnings-related pensions. The forecasts are updated after Statistics Finland publishes its population forecast (currently every three years).

The effects of the life expectancy coefficient have been taken into account when calculating the pension amounts presented on the pension record.

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The life expectancy coefficient is not applied in the following cases:

  • the pension recipient was born before 1948
  • other than a part-time pension began befpre 2010
  • the disability began before 2010
  • the disability pension becomes an old-age pension
  • a soldier’s pension right has come into force before 2010
  • when calculating a private-sector registered supplementary pension.

The life expectancy coefficient is not applied to the national pension

The national pension affects the pension recipient’s total pension. National pension is paid in addition to an earnings-related pension if the monthly earnings-related pension is less than 1,100-1,300 euros. The national pension is not adjusted with the life expectancy coefficient.

When the national pension begins, its amount is determined based on the amount of the earnings-related pension. The national pension increases annually in line with the increase of consumer prices. From time to time, separate general increases are made to the pension level.

The national pension reduced approximately half of the effect of the life expectancy coefficient on the earnings-related pension. The effect of the life expectancy coefficient is reduced in full if an individual gets the guarantee pension and a national pension.

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