Relative to GDP, the pension contribution level is the highest in Denmark and the lowest in Sweden. Finland stands out with high employer contributions and lower-than-average employee’s contributions. This is evident from the Finnish Centre for Pensions’ comparison.
In this report, we compare the level of pension contributions in nine European countries in 2014. Our report depicts the cost burden of pension provision in the countries under comparison. It takes into account statutory pension contributions, as well as the contributions of occupational pensions, which are common in Europe, and the share of general tax revenues in pension financing.
The highest contribution level relative to GDP is in Denmark (16.2%) and the smallest in Sweden (12.8%). With a total contribution level of 13.4 per cent, Finland is on an average European level.
“Our comparison has taken into account the structural differences between the systems in the different countries. As a result, it offers a general view of pension expenditure. If we were to examine only the statutory pension contributions, the Finnish pension provision would appear to be much more expensive”, says Mika Vidlund, liaison manager at the Finnish Centre for Pensions.
Employers pay more than employees
In all countries under comparison, employers pay a higher share of the pensions than employees do.
The employers’ share of the contribution is particularly high – about two thirds of the overall contribution – in Sweden and Finland. Employers pay the clearly lowest contribution shares in Denmark, where two thirds of the pensions are financed with tax revenues. In Germany and Austria, the share of tax revenues is also considerable: nearly one third of the overall premium income.
Because of the big role of tax revenues, the employee’s contribution burden is the smallest in Denmark. Similarly, the tax burden of employees is small in Finland and Sweden compared to Central European countries.
Ageing population reflected in contributions
The ageing population and the long weak economic development have led to rising pension contributions in several European countries in the 2010s.
Although the development of pension expenditure and contributions reflects the ageing society, it is not the only reason for the rising old-age pension expenditure. This is evident when comparing the old-age pension expenditure and the dependency rates in various countries.
“For example, in Sweden and Finland, the population is older than in Austria and Denmark, yet the pension expenditure is higher in both Austria and Denmark. This reflects to the generosity of the schemes,” Vidlund explains.
Our report compares the total pension contribution level of the pension systems in Finland, Sweden, Norway, Denmark, the Netherlands, France, Germany, Austria and Switzerland.
What is the cost of total pension provision and who pays the bill? – Cross-national comparison of pension contributions. Finnish Centre for Pensions, Reports 09/2016.
Mika Vidlund, Liaison Manager, Finnish Centre for Pensions, tel. +358 50 377 8140, mika.vidlund(at)etk.fi
Antti Mielonen, Special Adviser, Finnish Centre for Pensions, tel. +358 50 521 6310, antti.mielonen(at)etk.fi
Niko Väänänen, Special Adviser, Finnish Centre for Pensions, tel. +358 50 521 9249, niko.vaananen(at)etk.fi