Individual pension insurance and long-term saving

Supplementary pensions may be accrued individually by taking out a voluntary pension insurance or by signing a long-term savings contract.

The individual pension insurance may be taken out by the insured person or by the insured person’s spouse or employer. If the employer is the policyholder, the insured may not pay contributions to the insurance. A long-term savings account can be signed only by a natural person.

According to the Insurance Supervisory Authority, the number of individual pension insurance policies at the end of 2013 amounted to approximately 740,000 and the surrender value of the pension savings was approximately 12 billion euros. Individual pension insurance policies have lost popularity in recent years; the number of new policies has declined compared to previous years.

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Pension reform raised age limit for individual pensions

As a result of the 2017 pension reform, the age limit for voluntary pension insurance has risen and is the same as the age at which the insurance obligation for the birth year in question ends.

Year of birth Age when insurance obligation end
1957 or earlier 68 years
1958-1961 69 years
1962- 70 years

The pension contributions of voluntary pension insurance and long-term savings contracts made before 2013 are tax-deductible according to former rules. The age limits for the tax reduction rose to 68 years already at the beginning of 2013.

The insurance can be agreed to be either a fixed-term or a lifelong insurance. The majority of individual pension insurances are fixed-term.

An individual pension is not a hindrance for employment, and some of the persons drawing an individual pension are still in active employment. Usually, the insurance contract also includes life insurance provision for the event of the death of the insured person. In that case, the insurance savings are paid in predetermined parts to the insured person’s beneficiaries.

Savings returned in exceptional cases

The right of termination of an individual pension insurance and a long-term savings contract is limited. The individual pension insurance policy may be drawn on early in case of permanent disability. In case of unemployment that lasts for more than one year, the insured may draw the surrender value of the insurance policy, less the administrative costs.

The termination practice differs from one company to another. In general, individual pension insurance policies which can be drawn on early on the basis of disability or unemployment presuppose that the insurance savings are covered by life insurance.

Individual pension insurance taken out by the employer for the employee does not necessarily include vesting of pension rights if the employment contract ends before the employee reaches their retirement age.

Determining the pension

The pension according to an individual pension insurance contract or a long-term savings contract which will become payable in due course is determined on the basis of the accumulated savings, that is, the paid contributions and their return. An individual pension insurance may be interest rate-linked or investment-linked.

The return on interest rate-linked pension insurance consists of the technical interest rate and a separate additional interest rate determined on the basis of the insurance company’s profit.

The return on investment-linked insurance is determined on the basis of the development of the value of the funds chosen by the policyholder. The risk of the return on and the maintenance of the insurance capital in investment-linked insurance is carried by the client. In contrast to bank deposits, the capital has no statutory deposit guarantee.

According to Finance Finland, individual pension insurance policies had accumulated insurance savings to a total of 477 million in 2014. Of this amount, 74 per cent were paid into return-on-investment-linked insurance policies and 26 per cent to interest-linked policies.

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