Could future generations be left with no pensions at all?

Ministry of Social Affairs and Health 3.9.2015 14.48
News item

The pensions reform will take effect no later than from the start of 2017. Director Heli Backman explains why the pensions reform will be carried out and what to expect from it.

A transcript of interview

Why will the pensions reform be carried out?

"The purpose of the pensions reform is to lengthen the working lives of Finnish people. Once this has been achieved, less money will be needed for pensions, as people will spend less time in retirement. This will be significant for both our national economy and the funding of pensions. On the other hand, more extended working careers will also enable people to accrue pensions over longer periods, as a result of which pension levels will increase."

Whom will this reform concern?

"Firstly, while the reform will not concern those who already have retired, it will affect everyone who is currently working, and the retirement age of all those born in 1955 or later will go up. Our current retirement age, which is 63 years, will now be raised by three months per birth-year cohort, starting with those born in 1955.  On the other hand, the pension accrual rates will change for all those who work; in other words, the accrual rate for workers of all ages will be 1.5% of their earned income in the future. This portion of your earnings will be saved in the pensions system and paid out once you retire. The level of pensions will also go up as a result of the new calculation method, in which the amount of pension contributions will no longer be deducted from your pensionable wages."

What other benefits will the pensions reform bring?

"The pensions reform will guarantee a better level of retirement provision for the Finnish people while also reducing our sustainability gap. It has been estimated that this reform will reduce the sustainability gap by approximately one percentage point.

What else will be new after the reform?

"Partial early old-age retirement, which will replace part-time pension, will be introduced as a completely new form of pension. However, the purpose of the partial early-age pension is that workers can take retirement flexibly and, should they wish, they can draw part of their pension slightly before reaching the actual eligibility age for old-age retirement."

Are there any losers in this reform?

"The estimates we produced while preparing the reform indicate that the pension levels of all cohorts will increase. In particular, this applies to the younger cohorts, and the pension levels of those born in the 1980s, for example, will go up by some 9%.”

Is it possible that future generations could be left with no pension at all?

"No, it is not possible. The specific purpose of this pensions reform is to ensure sufficient pension funding, and secondly, all pensions accrued by workers enjoy protection under the Constitution. And securing a fair deal for different generations and safeguarding young people's pensions play a very central role in this reform."

Interview: Krista Kukkanen
Video: Kimmo Vainikainen, Anne Koskela