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Pensions and the EU

The pension systems of countries differ from each other markedly. In Finland, earnings-related pension is a statutory and compulsory insurance for all employees and self-employed persons. The pension accrues in relation to the earned salary, no matter what work and employer you are working on. Elsewhere in Europe, earning a pension is often closely linked to a particular profession or job.

The Finnish system differs from other EU countries

In Finland, the earnings-related pension is the principal source of income during the retirement years. Supplementary and voluntary pension arrangements are also available in Finland. However, they play a much smaller role than in other EU Member States.

The implementation model of the Finnish earnings-related pension system is also different from those used elsewhere in the EU. In the private sector, earnings-related pensions are managed in a decentralized manner by several competing pension insurance companies, company pension funds and industry-wide pension funds. The public sector has its own institutions for pension provision. The pension providers do not seek profit but work to secure earnings-related pensions.

The financing of pensions is also carried out differently from many other countries. In Finland, some of the earnings-related pension contributions are funded. The returns on the invested funds ease the need to raise pension contributions and serve as buffers for the payment of subsequent pensions. Thus, pension contributions remain permanently lower than in countries where contributions are not funded.

It is important that the special features of the Finnish earnings-related pension system are duly taken into account when developing EU legislation. Statutory earnings-related pension insurance must be kept outside cross-border service provision, as we have agreed on the status of our pension system in EU law.

Very limited jurisdiction for the EU in earnings-related pensions

Matters pertaining to the way in which statutory earnings-related pensions are arranged and the contents of earnings-related pension benefits are not included in the EU’s jurisdiction. The EU therefore cannot pass laws that would affect the contents of pension provision and other social security in individual Member States.

Since the Finnish earnings-related pensions are statutory social insurance, it is governed by the EU Regulation on the coordination of social security systems. The purpose of the above Regulation is merely to coordinate the social security rights, such as pensions, of EU citizens moving between Member States. The practical issue is to enable people to move from one Member State to another in search of work without loss or overlapping of, for example, social security pensions.

Pension systems have an impact on public finances

The ageing of Europe’s population and the sustainability problems of public finances have made pension reforms a topical issue in the Member States. The properties of pension systems play an important role for public finances in all European countries.

Following the economic crisis that began in 2008, the EU has introduced stricter economic coordination. Enhanced economic coordination also affects the pension policies of the Member States. Although the EU’s legislative competence does not directly encompass the arrangement of statutory social security pensions, the EU can use economic coordination to guide Member States to carry out pension reforms.

Economic coordination has become more binding in the 2010s. However, Member States often seek flexibility for it, and rules have also been interpreted in different ways. In recent years, social issues, such as questions pertaining to the adequacy of social security, have risen to the EU agenda for development. When the performance of Member States is assessed, we support the principle of placing the adequacy of pension benefits on a par with financial sustainability, as expressed in conjunction with the European Pillar of Social Rights.

Pension system must be kept in order

If we ourselves keep our pension system in a good shape, it meets the EU’s requirements as well. 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.

Our earnings-related pension system has been built on the foundation of the Finnish labour markets and economy. It encourages labour mobility, because the pension follows the worker even when he or she changes jobs or goes abroad to work.

The pension system is maintained continuously, for instance by assessing and revising it. In this revision, it is important to invest in extending careers at the end, in the middle and at the start. A healthy ratio between retirement and the work history is important for the economy on the whole.

With the pension reform, which entered into force in 2017, Finland has succeeded in ensuring the financial and social sustainability of the earnings-related pension system. In addition, the reform has a significant impact on reducing the sustainability gap in public finances. Even at the EU level, the reform can be seen as a model example of adapting to the trend of longer life expectancy.

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