The majority of 54-62-year-olds know that you get a higher pension if you work longer. Yet only half of them can estimate how much pension they will get. Even fewer know how the life expectancy coefficient will reduce their pension.
According to a recent study by the Finnish Centre for Pensions, two out of three 54-62-year-olds know that working longer affects your pension.
Those with at least an upper secondary level education and those with higher earnings know better than others in this age group how their pension will be affected if they continue working.
“The unemployed and those with a basic-level degree are less familiar with how working longer affects the pension amount,” explains Satu Nivalainen, economist at the Finnish Centre for Pensions.
Less than half can estimate the amount of pension they will get
Of the 54-62-year-olds who responded to the questionnaire study conducted by the Finnish Centre for Pensions, approximately half felt that they were able to estimate how much pension they will get when they retire. The respondents who were approaching their retirement age or who have a university degree or a high income felt, more often than average, able to do so.
More than half of the 54-62-year-old respondents were not at all familiar with the life expectancy coefficient, which cuts the amount of the monthly pension as people live longer.
“Most of those who were familiar with the life expectancy coefficient underestimated its effect,” says Sanna Tenhunen.
Economic incentives work rarely
The economic incentives that affect the pension amount play a role for only a small share of Finns. Although nearly 60 per cent found that the increment for late retirement is an incentive to work longer, only 15 per cent found that the incentives will affect their own retirement intentions.
Professional or managerial employees reacted more often than others to economic incentives. They are also more likely to continue working past their retirement age.
Pension record and calculators improve pension knowledge
Mikko Kautto, director at the Finnish Centre for Pensions, estimates that the principle of how earnings-related pension accrues is fairly well-known by Finns, but it would be good if they were better at estimating their pension amount.
“At least by the time you turn 50, you should check how much pension you have earned. The pension calculators improve pension knowledge. You can use them to check how your earnings and time of retirement affect the amount of pension you will get. They also provide concrete support when you plan the final stretch of your working life,” Kautto explains.
The survey questionnaire was sent to 4,000 persons in the spring of 2016. More than 2,000 people replied. The survey checked pension knowledge using three indicators: can the respondents estimate how much pension they will get, are they aware of the impact of the life expectancy coefficient, and do they know how working longer will affect their pension? The respondents were aged between 54 and 62 years.
THREE INCENTIVES TO CONTINUE WORKING
Life expectancy coefficient
The life expectancy coefficient reduces your monthly pension amount. The coefficient is confirmed each year for new, starting pensions. For example, the old-age pension of those born in 1956 will be reduced by 4 per cent when the pension starts in 2018 or later.
Increment for late retirement
If you retire late, your pension will be adjusted with the increment for late retirement. That means that your monthly pension amount will be increased by 0.4 per cent for each month from your retirement age to when you start drawing your pension. If you are working past your retirement age, you will also earn new pension at a rate of 1.5% per month of your annual earnings.
Reduction for early retirement
If you retire on a partial old-age pension before your retirement age, the part of the pension that you take out will be permanently reduced by 0.4% for each month from when you start drawing your pension to the month after which you reach your retirement age.
Satu Nivalainen, Economist, phone +358 29 411 2151, satu.nivalainen(at)etk.fi
Sanna Tenhunen, Economist, phone +358 29 411 2492, sanna.tenhunen(at)etk.fi
Mikko Kautto, Director, phone +358 29 411 2185, mikko.kautto(at)etk.fi