The pension entitlements of the earnings-related pension system were approximately 632 billion euros at year-end 2015. Pension entitlements means the amount of money that is enough to pay for the pensions that have already accrued. Slightly less than one third of the pension entitlements in Finland have been funded in advance, according to Statistics Finland.
The earnings-related pension entitlements of the private sector was 422 billion euros and of the public sector 210 billion euros at the end of 2015.
Combined, the Finnish pension entitlements were around 632 billion euros, or three times the GNP of the country. The entitlements have been calculated with an expected real-time discount rate of three per cent.
At year-end 2015, the earnings-related pension assets amounted to 183 billion euros, so around 30 per cent of the pension entitlements were funded.
The data is presented in a new statistics publication. The figures for Finland were calculated by the Finnish Centre for Pensions and published by Statistics Finland. Eurostat will publish the figures for all EU countries later this year.
“Pensions are long term commitments, spanning several generations. Releasing the pension entitlements increases the transparency of European pension schemes and improves national comparability,” says Mikko Sankala, mathematician at the Finnish Centre for Pensions.
Based on a fictive scenario
The calculation of the earnings-related pension scheme’s pension entitlements is based on a fictive scenario in which the insured are paid, in due course, all the pensions they have earned up to the point of reviews. In this fictive scenario, they do not earn any new pension.
That means that the amount of pension entitlements does not portray the sustainability of the pension system but the already earned share of the future pension expenditure. When calculating the sustainability, all expenses and income should be taken into account.
In calculations that span far into the future, the underlying assumptions, such as the discount rate, the population development and the economic outlook, have a considerable affect on the outcome. That is why three separate calculations, with three different discount rates, are calculated. If the discount rate grows by one percentage point, the value of the pension entitlements is reduced by approximately one hundred billion euros.
“The calculations give an idea of the magnitude of the already made commitments. The future always comes with a certain amount of insecurity. That is why calculations need to be done rather than left undone,” Sankala explains.
The Finnish Centre for Pensions also published data on the pension entitlements of the earnings-related pension scheme on a regular basis in its report Statutory Pensions in Finland: Long-term Projections. The current publication by Statistics Finland uses different background assumptions to improve international comparability.
Mikko Sankala, Mathematician, Finnish Centre for Pensions, phone +358 29 411 2567, mikko.sankala(at)etk.fi