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Earnings-related pension provision

Earnings-related pension is a part of the statutory social security scheme. It is an insurance that is the right of all employees and self-employed persons. The purpose of the earnings-related pension is to guarantee reasonable income for everyone in the event of old age, disability, or the death of the family’s breadwinner. The earnings-related pension is linked to earnings during working life. Its goal is to maintain the reasonable consumption level attained in work life during retirement.

The earnings-related pension is often the main source of livelihood for retirement years. Its amount is determined individually depending on each person’s own earnings during the work history. Absence from work because of various life situations is also taken into account when the pension is calculated.

How is earnings-related pension provision organized?

In the private sector, earnings-related pensions are provided by pension insurance companies, company pension funds, industry-wide pension funds and specialized pension providers. In the public sector, Keva bears the main responsibility. When jobs and pension insurers change, the pension information follows along.

Employers are responsible for insuring their employees, whereas self-employed persons, farmers and grant holders make their own arrangements for earnings-related pension insurance.

Not only companies but also households that pay wages must provide insurance cover. The employee’s pension insurance is compulsory if the monthly salary paid to the employee exceeds the set limit. Statutory employer’s obligations can be taken care of through the portal, for example (in Finnish or Swedish).

Financing of earnings-related pensions

Earnings-related pensions are financed from pension contributions and from returns on investments made by pension funds. Financing is mainly based on the pay-as-you-go system: the required amount of insurance premiums are collected each year to cover the earnings-related pensions paid. However, the pension system of private-sector employees operates on partly funded principle, where some of the pension contributions paid each year are put into a fund for future years. Partial funding is applied, for instance, to provide for the ageing of the population. The pension system of public sector, in turn, include certain buffer funds that help reduce the pressure to raise earnings-related pension contributions in the future.

The earnings-related pension contribution is an insurance premium that is collected from all employees aged 17 and over and self-employed persons aged 18 and older. In 2022, the average pension contribution for private-sector employees is 24.85 per cent of their wages. The employee’s share is 7.15 per cent for under 53-year-olds and for those who have turned 63. The share is 8.65 per cent for 53-62-year-olds. The employer pays the rest.

Self-employed persons are themselves responsible for their pension contributions. The confirmed income determined by the self-employed person forms the basis for the earnings-related pension and for other social security. It is the self-employed person’s own estimate of the price of his or her work, and it should correspond to the real value of the self-employed person’s work input. In 2022, the self-employed person’s pension contribution is 24.1 per cent of the confirmed income for under 53-year-olds and those who have turned 63 and 25.6 per cent for 53-62-year-olds.

More information can be found from the page “Funding principles”.

Earnings-related pension depends on work history

Earnings-related pension accrues on all paid work done in Finland that exceeds the minimum insurance limit (monthly salary at least EUR 62.88 in 2022). Earnings-related pension accrues specifically on the basis of work; for instance, income from capital does not affect it.

The accrual of pension starts for employees at the beginning of the month following the 17th birthday and for self-employed persons at the beginning of the month following the 18th birthday. Each year of work accrues a pension based on that year’s earnings.

In addition to paid work, pension also accrues, under certain conditions, on certain so-called unpaid periods, such as

  • periods of maternity, paternity and parental allowance
  • child home care allowance for a child under three years of age
  • periods of earnings-related unemployment benefits
  • studying towards a qualification or a degree.

More information about the accrual of earnings-related pension can be found for example at Työelä, “How much pension?”

People whose earnings-related pensions are small and who are living in Finland are also eligible for a national pension and a guarantee pension. These are benefits included in the basic social security and are paid for by the Social Insurance Institution (Kela).

The pensions earned are maintained

Any earnings-related pension already earned cannot be lost. It has been considered to be constitutionally protected property. Even if people change jobs, or switch from being an employee to a self-employed person or vice versa, the pension rights accrued thus far will stay with them.

Moreover, all changes made to the pension system always concern the future. The changes have thus no effect on the pension rights already accrued.

No maximum limit for earnings-related pensions

Earnings-related pensions have no maximum sum. In other words, all work done increases the pension and all earnings-related pensions earned during the work history are paid in full when the time comes. The exception is the integration of pensions, where indemnities paid under motor liability insurance and accident insurance are deducted from the earnings-related pension. If these indemnities reach a certain level, it is possible that no earnings-related pension remains to be paid.

The topic of a pension cap arises in public debate from time to time. It is often forgotten that even though high earnings increase the future earnings-related pension in full, pension contributions are also calculated on the whole salary. In contrast, the pension cap in use in some countries generally also includes a contribution cap, i.e. the insurance premium is paid only up to a certain limit. If the Finnish model were altered in this direction, the pension contributions paid by employees and employers would have to be raised sharply.

Changes in the value of money are considered in pensions

Changes in the value of money are taken into account when earnings-related pensions are calculated and paid. The buying power of pensions is ensured for both current and future pensioners. The mechanisms used here are the wage coefficient and the earnings-related pension index.

The wage coefficient is applied when the amount of a person’s pension is calculated at the time of retirement. By using the wage coefficient, all earnings during the work history are converted to the level prevailing in the retirement year. The wage coefficient takes changes in earnings and prices into account. The main emphasis is on the change in earnings.

The earnings-related pensions in payment are adjusted annually in January using the earnings-related pension index that also takes account of changes in earnings and prices. However, the main emphasis is on the change in prices.

During the early years of the earnings-related pension system, the index increments of pensions were based solely on wage trends. Subsequently the weighting of the index has been shifted so that increasing attention is paid to the change in prices. Through the amendments made in the past, conscious and important measures have been taken to relieve the pressure to raise pension contributions. If the current model were altered so as to place more weight on wages, pension contributions would rise and the impact on younger generations would be unfair.

Earnings-related pension is not only old-age pension

Earnings-related pension contributions insure earners not only for old aged but also for disability and the death of the family’s breadwinner. Apart from old-age pension, the pension benefits proper are partial old age pension, disability pension, partial pension for disability and the years-of-service pension. In addition, in the event of the breadwinner’s death, the survivors’ pension (surviving spouse’s pension and child’s pension) ensures the livelihood of the widowed spouse and children under 18 years of age, under certain conditions.

The pension system also offers the opportunity for vocational rehabilitation when the work ability of an employee or self-employed person is threatened. Rehabilitation allowance and partial rehabilitation allowance are paid to persons who participate in vocational rehabilitation provided under the earnings-related pension system. The pecuniary compensation for vocational rehabilitation is always higher than disability pension.

The various pension benefits are discussed in more detail on Työelä website, “Different pensions”.

The Pension Record reveals the accrual of earnings-related pension

The Pension Record shows how much earnings-related pension you have accrued by the end of the previous calendar year and what earnings are included in the calculation of the pension. The Pension Record does not indicate the exact amount of your future pension.

The record contains data on your work history and earnings in both the private and the public sector and both as an employee and though self-employment.

The pension record also shows the data on social benefits (so-called unpaid periods) that add to the pension. In addition, the record may also include an estimate of future old-age pension.

It is importatn to check the work history, earnings and relevant social benefits entered into the pension record. The future pension will be calculated on the basis of the information in the record. If you notice errors or omissions on the record, you should contact the pension insurer that has sent the record. If the data are correct, you don’t need to do anything.

It is easiest to check the pension record online either on the website of your own pension provider or at Työelä To use the service, you need your personal bank identifiers.

Pension providers also send pension records by post to the home addresses of people who are between 18 and 67 years of old and live in Finland.

More detailed information on pension records is available on the Työelä website.

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