Finnish earnings-related pensions have been reformed. The reform will take effect on 1.1.2017. Pension accrual rates will change immediately. The first new partial old-age pensions can be granted as of February 2017. In practice, the retirement age will rise in 2018. It will be possible to apply for the new years-of-service pension at the end of spring 2017. The first years-of-service pensions will be paid as of 1.2.2018.
The retirement age will rise gradually by three months per year from the current 63 years to 65 years. People born in 1955 will be affected first. Their retirement age will be 63 years and 3 months. People born between 1962 and 1964 can retire at age 65. After that, the retirement age will be linked to life expectancy.
Each age group will also have a target retirement age, which is slightly higher than their normal retirement age. By working until their target retirement age, people can offset the cutting effect of the life expectancy coefficient that reduces their pension if they retire at their normal retirement age. The target retirement age for each age group will be calculated five years before the age group’s retirement age.
Standardised pension accrual rates
For people between 18 and 52 years of age, the pension accrual rate will be 1.5 per cent of their annual earnings. From 2017 to 2025, the accrual rate for people aged between 53 and 62 years will be 1.7 per cent. Employees will accrue a pension as of age 17, while self-employed workers will accrue a pension as of age 18.
As of 2017, the paid earnings-related pension contributions will no longer reduce the pensionable wages. That means that the earnings on which the pension is based will be slightly higher than before.
Working longer will increase the pension
If a person does not take out their pension when reaching their retirement age, the pension will rise by 0.4 per cent for each month that they postpone their retirement. In one year, the pension will thus rise by 4.8 per cent. The increment for deferred retirement is to encourage people to continue working past their retirement age.
Partial old-age pension and years-of-service pension
People aged 61 years can retire on a partial old-age pension. They can take out 25 or 50 per cent of the pension they have earned. The part of the pension that is taken out will be reduced by 0.4 per cent for each month that the pension is taken out early. In other words, if they take out part of their pension one year yearly, that part will be reduced by 4.8 per cent. The reduction is permanent. Retirement on a partial old-age pension does not require working. The first partial old-age pensions can be granted as of 1.2.2017.
A person can receive the years-of-service pension at age 63 at the earliest. The first years-of-service pensions can be paid out on 1.2.2018. Preliminary decisions on the years-of-service pension can be applied for at the end of spring 2017. To receive a years-of-service pension, the worker must have done mental or physical work that requires great effort for at least 38 years. In addition, their ability to work must have been reduced.
The main aim of the earnings-related pension reform is to extend working lives, stabilise the pension contribution rate and ensure an adequate pension level also for the younger generations.
Marina Sirola, Pensions Trainer, marina.sirola(at)etk.fi, phone +358 29 411 2227
Pension reform in brief