This glossary comprises the key terms and explanations associated with the earnings-related pension system and earnings-related pensions.
Accrual of a pension
Accrual of a pension means the amount of earnings-related pension that accrues yearly from earned income.
As of the beginning of 2017, the yearly accrual rate from the age of 17 onwards is 1.5 per cent of the income forming the basis of the pension (Self-Employed persons from the age of 18). The accrual of a pension is also the same for work done during retirement, up to the maximum age limit of the insurance obligation.
The above notwithstanding, the annual accrual rate is 1.7 per cent of income between the ages of 53 and 62 years until 31 December 2025 (the transitional period agreed in the pension reform that entered into force in 2017).
The accrual rate is a percentage that indicates how much earnings from work increase the earnings-related pension.
As from the start of 2017, the accrued pension is 1.5 per cent of annual earnings, i.e. every euro earned increases the earnings-related pension by 1.5 cents. The above notwithstanding, until 31 December 2025, the accrual of pension for people aged 53–62 years is 1.7 per cent of their basic income per year (the transitional period agreed in the pension reform that entered into force in 2017).
The accrual of pension is calculated simply by multiplying the annual wages by the accrual rate.
The accrual rate for the projected component, associated with disability pensions, is also 1.5.
Acts on earnings-related pensions
The following Acts apply to earnings-related pensions
- TyEL – the Employees Pensions Act
- JuEL – the Public Sector Pensions Act
- YEL – the Self-Employed Persons’ Pensions Act
- MYEL – the Farmers’ Pensions Act
- MEL – the Seafarers’ Pensions Act
In addition, there are some other Pensions Acts that concern fairly small groups.
Cash rehabilitation benefit
Cash rehabilitation benefit means a fixed-term disability pension. In this case, it is judged that a person’s ability to work can be restored within the time limit so that the person can return to working life. The cash rehabilitation benefit and the disability pension are equal in size.
See also: Disability pension.
The administration of the Finnish earnings-related pension system is decentralized. This means that in both types and numbers, there are many different earnings-related pension providers. The decentralized model helps, for example, to manage the risk associated with the investment of pension assets, as investment activities do not depend on the views of only one operator.
Decentralization is described in more detail on our Decentralized pension system page.
Defined benefit pension scheme
The Finnish earnings-related pension system is a defined benefit scheme. This means that
- the benefit level is determined beforehand
- the benefit is based on the wages earned and the confirmed income
- the contributions needed to finance the scheme are flexible, whenever necessary.
See also: Defined contribution pension scheme.
Defined contribution pension scheme
A pension scheme is a defined contribution scheme if the benefit level is based on the combined amount of pension contributions and the investment returns obtained on them. In such cases, contributions are generally fixed and the benefit is flexible.
Thus, in practice, the money for the pension payments is taken from the accumulated assets to the extent possible. If there are difficulties in financing the pensions, the pensions in payment are cut. Elsewhere in Europe, defined contribution pension schemes are common.
See also: Defined benefit pension scheme.
A disability pension may be granted if an illness or a disability prevents working. The disability pension consists of
- the pension accrued during the work history to date
- the projected pension component.
The projected pension component refers to the inferred time that a person could have worked before the retirement age if there had been no disability.
Disability pension is discussed in more detail on the website Työeläke.fi:
Early retirement pension
Pensions that start before the old-age pension are called early retirement pensions. The early retirement pensions granted are disability pensions, years-of-service pensions and partial old-age pensions.
Earnings-related pensions are based on working and earnings from work. The Finnish pension system is earnings-related. An earnings-related pension accrues by a certain percentage of annual earnings.
See also: Pension accrual.
The pension accrues from the earnings obtained during the work history as a wage-earner or as a self-employed person. For an employee, the pension accrues from the age of 17 years onwards, and for a self-employed person from the age of 18 years onwards. Some unpaid periods also build up the pension (see also: Social benefit period).
The following are earnings-related pension benefits: old-age pension; partial old-age pension; disability pension; years-of-service pension and survivors’ pensions.
Earnings-related pensions are managed and paid by authorized pension providers, i.e. pension insurance companies, company pension funds and industry-wide pension funds.
The national pension and the guarantee pension paid by Kela guarantee livelihood if the earnings-related pension is small or non-existent.
Earnings-related pension index
Changes in consumer prices and income levels are noted in pensions by applying the earnings-related pension index. All pensions are adjusted annually using the earnings-related pension index, where
- prices have a weight of 80 per cent
- prices have a weight of 20 per cent.
Earnings-related pension contribution
The earnings-related pension contribution is a statutory insurance contribution used to finance earnings-related pensions.
Pension contributions are paid by private-sector and public-sector employers and employees. The employer insures the employees and deducts the employees’ share of the pension contribution directly from their wages.
Self-employed persons and farmers take out their own pension insurance. They pay their pension contributions based on their confirmed income to their own pension providers.
The guarantee pension secures that a low-income pensioner receives a minimum pension. If the pensioner’s other combined pension income falls below a set amount, the guarantee pension fills the gap. The guarantee pension is granted and paid by Kela.
A guarantee pension is not paid to a person who receives only a part-time pension, a partial old-age pension, a years-of-service pension, a partial disability pension or a survivors’ pension.
The guarantee pension is described in more detail on Kela’s website:
Increase for late retirement
If an employee does not use his or her right to old-age pension at the minimum age for old-age pension, in other words, does not take out the pension, the pension accrued is adjusted by an increase. The increase is not linked to working, i.e. it is granted regardless of whether or not you continue to work after reaching the minimum retirement age.
The increase is 0.4 per cent for each month that retirement is postponed after the minimum retirement age. That means an increase of 4.8 per cent per year. The increase for late retirement increases the earnings-related pension earned by the time the retirement age is reached.
Indices and index increment
Changes in the value of money are taken into account in both the calculation and payment of earnings-related pensions. This helps to ensure the buying power of pensions for both current and future pensioners.
The indices used in the earnings-related pension system are the wage coefficient and the earnings-related pension index.
Each year, the Ministry of Social Affairs and Health confirms the indices applied to earnings-related pensions.
Life expectancy means the average number of years a person of a certain age lives if mortality remains unchanged. In Finland, life expectancy is calculated by Statistics Finland.
A change in life expectancy affects the life expectancy coefficient and the minimum age for old-age pension.
Life expectancy coefficient
The life expectancy coefficient adjusts the level of earnings-related pensions to the rise in the average life expectancy. Its purpose is to curb the costs of increasing life expectancy and to encourage people to keep working longer. The coefficient is calculated each year separately for the age group that reaches the age of 62 years in that year. The coefficient is based on the mortality statistics for previous years.
If the average life expectancy increases, the life expectancy coefficient reduces the monthly pension. This reduction is levelled out by staying in working life longer.
The life expectancy coefficient is decreased when the retirement age for old-age pension is 65 years, i.e. after 2027. The decrease in the life expectancy coefficient applies to both old-age pensions and disability pensions. In addition, the scope of the life expectancy coefficient is extended to cover the projected component of disability pensions.
A person who lives in Finland and is at least 16 years old may be granted a national pension.
A full national pension can be obtained if there is no earnings-related pension or if it remains small.
The earnings-related pension reduces the national pension: the higher a person’s earnings-related pension, the smaller the national pension.
The amounts of the national pension and the income limits are presented on Kela’s website:
Old-age retirement is possible after the minimum retirement age has been reached. In the earnings-related pension system, the retirement age depends on the person’s own year of birth. In the national pension, the age for old-age pension is 65 years.
All earnings-related pensions earned during the work history are paid as old-age pension. The higher the retirement age, the greater the earnings-related pension.
Retirement on old-age pension requires that the employee terminates his or her employment. Self-employed persons need not give up their entrepreneurial activities when they retire on an old-age pension.
Old-age pension is discussed in more detail on the website Työeläke.fi:
The orphan’s pension is a pension that is paid to a child under 20 years of age if a parent or a provider of the family dies.
The orphan’s pension is discussed in more detail on the website Työeläke.fi:
Under the legislation valid until the end of 2016, a part-time pension referred to a pension that a person received while working part-time. Employees and the employer had to agree on the start of part-time work and part-time pension.
The part-time pension was replaced by the partial old-age pension as of the beginning of 2017. It is no longer possible to retire part-time.
See also: Partial old-age pension.
Partial disability pension
The disability pension may be granted as a partial pension if the person’s ability to work has decreased by at least two fifths. The amount of the partial disability pension is half of the full disability pension.
See also: Disability pension.
Partial old-age pension
A person can retire on a partial old-age pension and take out part of the earnings-related pension after having turned 61 years. Partial old-age pension is a quarter or half of the earnings-related pension that has accrued up to that point. The pension is adjusted using the life expectancy coefficient. In addition, partial old-age pension is subject to a reduction for early retirement, which is 0.4 per cent for each month. The reduction for early retirement is permanent.
A partial old-age pension does not require working alongside the pension, nor does it involve any monitoring of pay or working hours.
The lower age limit for the partial old-age pension will be raised to 62 years as of the beginning of 2025.
Partial old-age pension is discussed in more detail on the website Työeläke.fi:
Pension means regular income obtained after the work history. Pension can be an earnings-related pension or a national pension.
The pension ceiling means a euro-denominated upper limit set for the statutory earnings-related pension. Owing to the pension ceiling, earnings-related pensions would remain under a certain maximum. The Finnish earnings-related pension does not include a pension ceiling; instead, the pension accrues on all wages for everyone according to the same principles.
Pension funds refers to assets that are kept for future earnings-related pensions and that are invested by pension providers. The assets are derived from pension contributions and are intended for paying earnings-related pensions.
Pension funds are often referred to as pension assets, pension investments or investment assets.
A pension provider manages and pays earnings-related pensions. The pension provider can be a pension insurance company, a company pension fund, an industry-wide pension fund or a sector-specific pension provider.
The administration of the earnings-related pension system is decentralized among many pension providers. Common issues within the system are managed by the Finnish Centre for Pensions (ETK). The Finnish Pension Alliance TELA looks after the interests of insurers providing earnings-related pensions.
The pension record includes the person’s earnings accumulated so far and the pensions accrued from them. In addition, the pension record lists the pensions accrued from social benefits, i.e. from unpaid periods. The easiest is to read the pension record electronically in the pension provider’s online service or on the Työeläke.fi website.
The pension provider that sent the record should be informed without delay if the data in the pension record need to be corrected.
The pension record is described in more detail on the Työeläke.fi website:
Reduction for early retirement
The reduction for early retirement is linked to the partial old-age pension. The pension paid is adjusted using a reduction of 0.4 per cent for each month of early retirement. That means an increase of 4.8 per cent per year. The reduction has a permanent impact on the pension.
Registered TEL supplementary pension
Employers have earlier been able to improve employees’ pension benefits by means of a registered TEL supplementary pension. The registered TEL supplementary pension increased the amount of pension paid or lowered the employee’s retirement age or both.
The registered supplementary pension insurance was discontinued at the end of 2016. Since then, no additional TEL supplementary pension has accrued for employees covered by TEL supplementary pension insurance. TEL supplementary pensions accrued before the end of the insurance are paid when the person retires.
Rehabilitation allowance is paid to persons who participate in vocational rehabilitation organized by authorized pension providers. If the employer pays wages for the rehabilitation period, the rehabilitation allowance may be paid to the employer.
The rehabilitation allowance consists of the disability pension to which the rehabilitee would be entitled at the moment if he or she were to retire on a disability pension. The disability pension is increased by 33 per cent.
See also: Vocational rehabilitation.
All people residing in a country are entitled to a residence-based pension with no requirement of employment. In Finland, the national pension is residence-based.
See also: National pension.
Retirement age usually means the age at which old-age pensions begin.
In the earnings-related pension system, the minimum age for old-age pensions depends on the person’s own year of birth. Since 2017, the retirement age for old-age pensions is raised stepwise from 63 years to 65 years. The retirement age for people born in or after 1955 will increase by three months a year, until the minimum retirement age for people born in 1962 is 65 years.
You can check your own retirement age with the retirement age calculator on the Työeläke.fi website.
The goal is to keep the relationship between pension years and working years the same as it is projected to be in 2025. If this makes it necessary to adjust retirement age limits, the next adjustment will be made in 2030. The increase is at most two months per year.
The upper age limit for retirement age and for compulsory insurance is five years above the lower limit of the retirement age for old-age pensions, calculated in full years. For example, if the retirement age for an age group is 63 years 3 months, the upper age limit is exactly 68 years. When a person reaches the upper age limit for an old-age pension, he or she no longer accrues a pension from work and no longer needs to pay pension contributions.
Persons who have a long history of working for the state or a municipality may still have an occupational or personal retirement age that differs from the above descriptions. However, these arrangements no longer apply to new employees.
The National Pension Act uses 65 years as the age for old-age pension.
See also: Old-age retirement.
Retirement age expectancy
The retirement age expectancy refers to the age at which a person now aged 25 or 50 years is expected to retire. Thus, it describes the number of imputed working years remaining, as well as the age at which a payer of pension contributions becomes a pension recipient.
The retirement age expectancy, developed by the Finnish Centre for Pensions, also considers disability pensions.
The expected retirement age is described in more detail on the website of the Finnish Centre for Pensions:
Right to a pension
The earnings-related pension is based on earnings obtained during the work history. Hence, the right to an earnings-related pension arises from gainful employment.
However, the right to a pension does not arise from earnings obtained:
- under the age of 17 years (as of 1 January 2017);
- after passing the upper age limit for compulsory insurance;
- before the entry into force of the Pension Act;
- or when the earnings fall short of the minimum defined for the insurance obligation.
Self-employed person’s confirmed income
The self-employed person’s confirmed income is the annual income that the pension provider has confirmed for the self-employed person’s pension insurance (YEL insurance). The self-employed person pays pension contributions on the income, and the income is used as the basis for the accrual of pension.
The confirmed income should match the self-employed person’s work input and should correspond to the wages that an outside employee would be paid for the same work.
Many of the self-employed person’s social security benefits are also determined on the basis of the confirmed income.
Social benefit periods as grounds for pension
Earnings-related pension also accrues from certain social benefits, otherwise known as unpaid periods. Examples of social benefits that accrue pensions are:
- maternity, paternity and parental allowance
- sickness allowance
- earnings-related unemployment allowance.
A more detailed account of the pension accrual of social benefits is available on the Työeläke.fi website:
Statutory pension provision
In Finland, pension provision is laid down by law. Pension laws guarantee
- an earnings-related pension to employees and self-employed persons who are covered by pension insurance
- a national pension for people who live in Finland and get only a small earnings-related pension or no earnings-related pension at all
- a guarantee pension, which ensures the minimum pension if the national pension and other pensions fall short of this
- a survivors’ pension for the surviving spouse and children if a spouse or a provider of the family dies.
In addition to the statutory pension, an employer can offer the employees a voluntary supplementary pension. The supplementary pension increases the amount of the pension paid or lowers the employee’s retirement age. Supplementary pensions are not funded by statutory pension contributions. Instead, they are paid by the employer.
A supplementary pension can be
- a collective supplementary pension plan
- a group pension plan
- a supplementary pension arranged through an industry-wide pension fund or a company pension fund.
The survivors’ pension secures the family’s income if one of the spouses or a provider of the family dies. The widowed spouse and children under 20 years of age are entitled to a survivors’ pension.
The survivors’ pension consists of the surviving spouse’s pension and the orphan’s pension. The spouses of a registered same-sex partnership have the same right to a surviving spouse’s pension as a married couple. The parents’ marital status does not affect a child’s right to a survivors’ pension.
The survivors’ pension is described in more detail on the Työeläke.fi website:
Surviving spouse’s pension
A man or a woman whose spouse has died may be entitled to a surviving spouse’s pension. Under certain conditions, the surviving spouse may receive a pension both under earnings-related pension laws and under the National Pension Act.
The right to a surviving spouse’s pension arises through marriage or common-law marriage, with different conditions . A registered same-sex partnership is comparable to a marriage.
The surviving spouse’s pension is discussed in more detail on the website Työeläke.fi:
Target retirement age
In addition to the lower limit for old-age retirement, an imputed target retirement age is determined for each age group. This is an imputed age at which the earnings-related pension is, so to speak, complete: at the target retirement age, the increase for late retirement has offset the pension cut made by the life expectancy coefficient. Then the earnings-related pension is equal to what it would have been at the lowest retirement age without the life expectancy coefficient.
Unemployment pathway to retirement
The unemployment pathway to retirement is intended for aged long-term unemployed people. It means that an unemployed person receives additional days of unemployment allowance after the end of the maximum unemployment allowance period of 500 days. The pathway continues until the beginning of the retirement age. At most, the allowance for additional days can be paid until the end of the month when the person reaches the age of 65 years. The allowance for additional days is different for different age groups.
The unemployment pathway to retirement is discussed in more detail on the website Työeläke.fi:
Rehabilitation within the earnings-related pension system means vocational rehabilitation arranged by authorized pension providers. Its objective is to prevent disability and improve coping at work. The means used by vocational rehabilitation include, for example, work trials, training for work and education. Vocational rehabilitation does not include medical rehabilitation.
Rehabilitation of various types may also be provided by
- Kela and the TE offices
- hospitals, health centres and municipalities
- accident and motor insurance companies.
More information on vocational rehabilitation arranged by authorized pension providers is available on our Vocational Rehabilitation page.
Voluntary pension insurance
Voluntary pension insurance is a pension plan that a private individual usually pays for in its entirety. At the same time, it is a form of long-term saving.
Voluntary pension insurance makes it possible to retire earlier or to have a better pension than the earnings-related pension accrued.
The wage coefficient is needed for calculating the amount of the earnings-related pension at the start of retirement. The wage coefficient raises the wages and confirmed income earned during the work history to the level in the year of retirement.
In the coefficient,
- the weight of the change in earnings is 80 per cent
- the weight of the change in prices is 20 per cent.
Years-of-service pension means a pension that is available after a long career at the age of 63 years. It presupposes a long history of strenuous and wearing work (at least 38 years) and reduced work ability.
The years-of-service pension is discussed in more detail on the website Työeläke.fi: