Years-of-service Pension: Rare Arrangement in Europe

Pension types similar to the years-of-service pension that will be introduced in the forthcoming pension reform in Finland can be found in five European countries. In many respects, the criteria for the pension are similar, but there are also differences. Finland will be a forerunner when it comes to measuring the mental strain of work.

The years-of-service pension, which will be introduced in Finland as part of the 2017 pension reform, is a rare pension type. According to a recent review (available only in Finnish) by the Finnish Centre for Pensions, a similar pension arrangement exists in only five European countries. The criteria, implementation and problems relating to the granting of the years-of-service pension are reviewed in this international comparison.

Difficult to prove requirement

In all five EU countries (Austria, France, Greece, Italy and Poland), the years-of-service pension is part of the general pension system and based on specific criteria relating to the nature of the work.

As a rule, the years-of-service pension allows for the insured to retire two to five years before the general retirement age. The prerequisite has been physically strenuous or otherwise taxing work. The requirement is a working life spanning 35-45 years, including at least seven years of taxing work.

In Finland, the earliest eligibility age for the years-of-service pension is 63 years, and a further requirement is a working life spanning 38 years of mainly physically or mentally taxing work. The earliest eligibility age will be linked to life expectancy. The requirements concerning the taxing work and the implementation of this pension type are yet to be decided.

”In other countries, the review of the taxing nature of the work focuses mainly on the final years of working life. Proving the Finnish requirement of a mainly taxing working life is more challenging than in the countries of comparison,” explains Niko Väänänen, Special Adviser at the Finnish Centre for Pensions.

Mentally taxing work

The criteria of taxing work in the countries of comparison are divided into three categories: a strenuous working environment, physically taxing work, as well as a strenuous work rhythm and mentally taxing work.

In Finland, taxing work may also be mentally strenuous work. In the countries of comparison, Austria is the only one to acknowledge mentally taxing work as a criterion for this pension type.

”The criterion of taxing work is first and foremost physical in the other countries of comparison. Finland will be a forerunner in the measuring of mentally strenuous work. The Finnish solution will be followed with great interest in other countries,” Väänänen says.

Rarely used pension type

In some of the countries of comparison, the employer is under obligation to register information on strenuous work. The registration obligation facilitates the verification of the pension requirements.

Based on the statistical information received from the countries of comparison, the years-of-service pension is a pension benefit seldom used.

“We must remember that the pension systems in these countries also have other routes for early retirement. The years-of-service pension usually comes with a reduction which, depending on its size, decreases the popularity of the years-of-service pension. The criteria set for the years-of-service pension are strict in all countries.”

In addition, the insured in many countries have had problems proving in retrospect that their working life has been strenuous. This has led to a low granting rate of the years-of-service pension.

The years-of-service pension is financed differently in the countries of comparison. In France, Greece and Poland, employees pay an employee-specific additional contribution if strenuous work is done in the company. In Italy, the State funds the additional expenses caused by the years-of-service pension. In Finland, no additional contribution will be collected.

Further information

Niko Väänänen, Special Adviser,  +358 29 411 2325, niko.vaananen(at)etk.fi