The pension systems of countries differ from each other markedly. In addition to pensions paid by Kela, pensions based on earnings are part of social security in Finland.

An important feature of the Finnish pension system, distinguishing us from other EU countries, is the management of our earnings-related pension system: in the private sector, implementation of this statutory pension is decentralized among several pension insurers. This forms the basis for the status of our earnings-related pension system in EU law, which defines pension insurance in many ways. Basically, the question is how to safeguard the Finnish earnings-related pensions.

The status in EU law safeguards Finnish earnings-related pensions

The character of our earnings-related pension system as social security and the special features of the private-sector pension insurers lay the foundation for the status of the Finnish earnings-related pension system in EU law. This means that the EU abandoned the principle of cross-border competition in insurance business with regard to our earnings-related pensions in the private sector (TyEL).

More specifically, the question is about insurance legislation that permits cross-border competition (Directive on life insurance, Solvency II). One of the basic tenets of the EU is the free movement of goods and services. As a rule, insurance undertakings are entitled to carry out their business anywhere in the EU and, correspondingly, policyholders are entitled to take out a policy with any insurance company operating in the EU. Therefore, the directive does not apply to the Finnish TyEL insurance.

This was agreed upon when we joined the EU in 1995 (Finland’s Treaty of Accession 1994). A precondition was that earnings-related pensions were separated from other insurance operations. This was done in the Act on earnings-related pension insurance companies, which entered into force in 1997. According to the Act, pension insurance companies are only allowed to engage in statutory earnings-related pension insurance.

In accordance with the licensing practice, foreign operators may come to Finland and establish an earnings-related pension insurance company here, or acquire a company that is already in business here. Another cornerstone of the status in EU law is that all companies engaged in statutory earnings-related pension insurance in Finland must have their head office in Finland. Supervision is also in the hands of Finnish authorities. Finland has passed a national law to determine, among other things, how the investments and solvency of pension insurance companies are supervised. Earnings-related pension assets can only be used to finance earnings-related pensions. They cannot be used to promote or favour the national goals of economic policy in a way that distorts competition.

The status achieved through Finland’s Treaty of Accession concerns the limitation of life insurance legislation but does not apply to other EU laws. For example, pension insurers are subject to EU laws on competition, as well as other legislation concerning the financial sector, such as investments.

Since earnings-related pensions are regarded as social security pensions, the EU Regulation on the coordination of social security systems applies to them. The purpose of the Regulation is to coordinate the social security rights, such as pensions, of EU citizens moving between Member States, thereby enabling the free movement of labour. On the basis of the Regulation, Finnish authorized pension providers are not subject, for example, to the EU Directives on occupational retirement provision (IORP Directives), which in principle create an internal market and standards for employer-specific and trade-specific pension funds.

The Finnish earnings-related pension system has an established status in EU law, since its social security character has been recognized on several occasions, for instance, when passing various Directives. In our opinion, the status in relation to the EU’s insurance legislation must be maintained in the future as well.


In 2013, we commissioned a study that assessed the conditions of our status in EU law from the perspective of the EU legislation on internal markets and competition law. The key conclusion of the study was that the earnings-related pension system should remain clear and comply with the obligations agreed upon in connection with the EU Accession Treaty as accurately as possible. According to the study, the European Commission can question the established and recognized position only if Finland itself makes essential changes to the regulation and implementation of the pension system. The better the system can support the movement of labour, the more acceptable it is in view of EU law. By the Commission’s decision, in statistics, earnings-related pension assets are included in Finland’s public finances. However, it is important from the perspective of state aid laws that pension investments are not considered public investments (i.e. as part of the state). They cannot be used to promote or favour the national goals of economic policy in a way that distorts competition. Pension providers always make their investment decisions independently.

Status of the Finnish pension system in EU law in a nutshell:

  • Finnish earnings-related pensions are considered to be part of social security
  • The core value of the Finnish earnings-related pension scheme is associated with solidarity and wide-range sharing of risks, not only in financing but also between employees and employers and between different generations.
  • The Regulation on the coordination of social security systems brings together the rights of EU citizens
  • The legislation on life insurance, which enables cross-border competition, or the Directives on occupational retirement provision do not apply to Finnish earnings-related pensions
  • Pension providers may only engage in earnings-related pension insurance
  • Earnings-related pension assets are meant solely for earnings-related pensions
  • Insurance companies from other EU countries can operate in Finland on the same terms as domestic operators
  • National solvency legislation regulates the capacity of Finnish pension insurance companies to take investment risks