Pension reform will reduce the sustainability gap

Government Communications Department 26.9.2014 10.22
Press release 410/2014

(Translation. Originally published in Finnish on 26 September 2014)

One of the key objectives of the Government of Prime Minister Alexander Stubb has been to strengthen the sustainability of public finances. The government efforts for reaching the goal have been based on the Structural Policy Programme adopted by the government of Prime Minister Katainen last year, which the present government still implements.

According to the preliminary estimate of the Ministry of Finance, based on the baseline calculations made by the Finnish Centre for Pensions, the negotiation result adopted on the pension reform today meets the goals set for it. The reform will reduce the sustainability gap of public finances as it reduces pension expenditure and raises the employment rate by an amount corresponding with one per cent of the GDP. In addition, account must be taken of the increase in the yield on pension investments, made possible by the changes agreed in the investment rules. These reforms agreed by the central labour market organisations and the earlier government decision on freezing the pension index have an overall impact on the sustainability of public finances, strengthening them by an amount corresponding with slightly over one per cent of the GDP. This meets the goal set for the pension reform in the Structural Policy Programme.

In addition to raising the employment rate and strengthening the public finances, the reform also supports the social sustainability of the Finnish pension scheme. Compared to the current pension scheme, it will raise the average pension level in the future, alleviate pressure to increased the pension contributions, and strengthen just treatment of generations.

The pension reform is the key part of the Structural Policy Programme. The goal set for the programme was to strengthen the sustainability of public finances by an amount corresponding with one per cent of the GDP. In spring, the labour market organisations submitted to the Government a statement by which they committed themselves to preparing a reform proposal that would meet this goal.

The negotiation result provides good foundation for tripartite regulatory preparation

According to an estimate of the Ministry of Social Affairs and Health the negotiation result provides a good foundation for the tripartite regulatory preparation process concerning the reform. Since the life expectancy of Finns has rapidly increased, in the future, some of the additional years should be spent in working life. The earliest eligibility age for old-age pension would be raised gradually to 65 years, and later it would be linked to life expectancy. In spite of this, in the future, people will still have more time spent in retirement than they have today. According to the pension scheme, people with a particularly strenuous work would have the right to retire after a working career spanning 38 years even before they have reached the actual retirement age.

The pension scheme is an entity, where, for example, by raising the retirement age the pension contributions can be maintained at a reasonable level in the years to come. Moderate pension contributions benefit both the employers and employees. A moderate contribution level also supports the economy and business sector in general, when the total tax ratio remains lower.

The Government thanks the labour market organisations and everyone involved in the preparation of the proposal for work well done.

Alexander Stubb government structural policy programme