List of topical issues

Only 13 per cent of the Finns know how much they pay in pension contributions. 29 per cent underestimate their pension contribution rate. These are results revealed in a new survey on pension knowledge conducted by the Finnish Centre for Pensions.

According to the study, the highly educated, self-employed persons and those belonging to the highest income bracket are more familiar than others with their pension contribution rate. Women, those with a basic educational level, pensioners and those belonging to the lower income brackets were able to estimate their pension contribution rate less often than others.

On average, the pension contribution rate is 24.4 per cent of the monthly wage. The contribution rate applies to all Finns who are covered by the earnings-related pension acts, regardless of age. Yet very few had even a rough idea of the correct rate. This makes researchers baffled.

“The lion’s share of pension financing consists of paid pension contributions. It is difficult to discuss pension financing if people don’t know how much they pay in pension contributions,” economist Sanna Tenhunen states.

Tenhunen argues that the poor knowledge can be partly explained by such a mundane thing as the payslip. In Finland, the payslip shows only the worker’s share of the pension contribution, not the employer’s. The worker’s contribution is only part of their total pension contribution. The employer transfers both the worker’s and the employer’s shares to the pension insurance company.

“The self-employed, on the other hand, handle the contribution payments themselves, which is why they have a clearer idea of how much they pay for their pensions. They also stand out as a group that is familiar with their contribution rate more often than others.

In this study, we have assessed estimates of the contribution rate to be correct if they were within a 5-percentage-point range of the correct level (19-29%).

Retirement age best known

Head of research Susan Kuivalainen (Finnish Centre for Pensions) argues that previous study results have shown that a significant part of Finns feel that they know pension issues poorly or fairly poorly.  This study shows what facts the Finns actually know. At the same time, the study reveals shortages and incorrect notions.

“On the other hand, we cannot assume that everybody knows everything. Pension issues are of interest in different ways to people of different ages and in different life situations. For example, the unemployed are better aware than others of their right to a partial old-age pension,” Kuivalainen explains.

The Finns are best aware of the age limits of the old-age pension. Nearly three out of four of the respondents knew that the retirement age is not the same for all. In connection with the 2017 pension reform, the general retirement age became specific for each birth year.

The Finns are least familiar with the effects of periods of child home care and studies leading to a degree on pension accrual. On average, the respondents could reply to 2.4 statements out of 5.

The survey was conducted in September-December 2019. A total of 1,757 Finns aged between 25 and 67 years responded to the survey.

FACTS: Pensions are financed with earnings-related pension contributions

Earnings-related pensions are financed mainly by earnings-related pension contributions paid by employers, workers and the self-employed. The purpose of pension funding and investment operations is to stabilize future pension financing as pension expenditure grows.

On average, the pension contribution rate is 24.4 per cent of the monthly wage in 2020.

The worker’s share is 7.15 per cent for workers under 53 years and over 63 years and 8.65 per cent for workers between the ages of 53 and 62. The average employer contribution in 2020 is 16.95 per cent. In the spring of 2020, due to the financial crisis caused by the corona pandemic, the employer’s contribution was reduced temporarily by 2.6 per cent.

The contributions paid by the self-employed and farmer are based on their pension-declared income. For those under age 53, the contribution rate is 24.10 per cent, and for those aged 53 to 62 years, it is 25.60 per cent.

How familiar are Finns with pension issues and the 2017 pension reform in Finland? Questionnaire survey on views relating to pensions. Finnish Centre for Pensions, Studies 04/2020

Photo: iStock

Finnish Centre for Pensions – Central body of and expert on statutory earnings-related pensions