Statutory Earnings-Related Pension Scheme for Private Sector Employees

Mandatory insurance

• All employees in gainful employment (age 17 or older) with earnings above the minimum insurance limit.
• Insurance obligation ends at age 70 for persons born after 1961.¹

Voluntary insurance

• No possibilities for voluntary insurance in this scheme.

General finances

• Mainly PAYG-, partly capital-funded scheme based on pension insurance contributions from employer and employees.

Contribution rates

• Fixed share of monthly gross earnings (24.4%, higher for persons aged 53 to 62 until the end of 2025) without contribution assessment ceiling, but with minimum insurance limit (EUR 60.57 per month in 2020).
• Contributions are shared between the employer (17.25%)² and the employee (7.15%, higher for persons aged 53 to 62 until the end of 2025³).
• Pension benefits for unpaid (non-contributory) periods are financed jointly by all pension providers (excluding periods of education/studies and child home care allowance, which are financed solely by the state and which are regulated under a separate act); contributions for periods of unemployment are paid by the Employment Fund.

Taxation of contribution payments

• Contributions are tax-deductible.

• The administration is decentralised and run by several authorised pension providers.
• The pension providers are supervised by the ‘Financial Supervisory Authority’.
• Certain functions such as coordinating pension claims from abroad and coordinating the cooperation between pension providers are handled centrally by a statutory co-operation body, the ‘Finnish Centre for Pensions’.

Qualifying conditions

• Statutory retirement age is currently rising by 3 months per cohort and will reach 65 in 2027 for persons born in 1962; as of 2030, the retirement age for persons born after 1964 will be linked to changes in life expectancy.
• No minimum contribution period is required.
• Years-of-service pension: Special conditions apply to persons in hazardous jobs (i.e. persons with mental or physical work requiring great effort): persons with a reduced work capability can apply for a years-of-service pension at age 63 after a minimum qualifying period of 38 years; after reaching the standard retirement age, this pension is turned into an old age pension (bridging function).

Early retirement

• Available only when claiming partial old age pension at the age of 61; early retirement age increases to 62 for persons born in 1964; for persons born after 1964 the early retirement age will be linked to cohort-specific changes in life expectancy; with negative (permanent) adjustments to pension benefits (0.4% per month).
• Not available when claiming a full old age pension.

Deferred retirement

• Retirement can be deferred with positive (permanent) adjustments to pension benefits (0.4% per month) with no upper age limit.

Combining employment & retirement

• Termination of employment or change of previous working conditions are a precondition for claiming full old age pension benefits; the retired person can continue employment (without earnings limit) if employment relationship/conditions have changed.
• The partial old age pension offers a flexible way to combine employment and partial retirement (25% or 50%) without restrictions on working hours and income ceilings.

Pension benefits

• Primarily based on the amount of earnings throughout entire working career. Pensions can be accumulated during unpaid (non-contributory) periods.
• No specification in law regarding fixed minimum and maximum amount of pension benefits.

Benefit calculation

• Pension accrues based on annual earnings and accrual rate. The earnings-related pension accrues at a rate of 1.5% of the annual gross earnings as of age 17 until the age when the insurance obligation ends.
• Pension accrues also for unpaid periods of earnings-related social security benefits. The pension accrues on all earnings that are a basis for the benefits without a ceiling.
• When calculating a new pension, earnings from employment over the entire working career are adjusted to the level of the year when the pension started by an index calculated by applying a weight of 20% to changes in prices and 80% to changes in wages.
• Life expectancy coefficient: adjustment of pension benefits by life expectancy at the time when pensions are first claimed.
• Adjustments: yearly adjustment of pension benefits based on pension index  (calculated by applying a weight of 80% to changes in prices and 20% to changes in wages).
• Periods of home care of one’s own children under the age of three, and studies leading to a degree entitle to a benefit under a separate act.⁴

Taxation and social security contributions

• Pension benefits are subject to taxation; due to pension deduction regulations, pensions below EUR 11,575 per year are not taxed.
• Mandatory contribution for sickness insurance’s medical care insurance component.