Research has shown that Finnish citizens
are increasingly looking at their life expectancy when making pension
decisions. Finland, in conjunction with the 2017
pension reforms, introduced an early partial retirement pension that can be
claimed from the age of 61. An earlier study conducted by the Finnish pensions
centre had shown that the most common reason for applying for this type of
pension is uncertainty about the future and life expectancy. The latest results
support this observation.
A recent study now shows something
surprising: claiming a partial retirement pension depends on the parents’ life
expectancy. The shorter the predicted life expectancies, the more likely people
are to apply for a partial retirement pension. Finns seem to estimate their own
life expectancy based on the life expectancies of their parents. Individuals
whose same-sex parent died at a younger age are more likely to apply for a
partial retirement pension than other people. Men have a shorter life
expectancy than women and they are also about 50 per cent more likely to apply
for this benefit.
Possible effects on pension financing
The results of this study could have
important implications for the pension system, as specific decisions about
partial retirement will inevitably be reflected in future pension payments.
Pension funding calculations are generally
based on average life expectancy. Until now it has always been assumed that
people do not make their retirement decisions based on their estimated life
expectancy. Therefore, people who live shorter lives will receive fewer pension
payments during their lifetime and people who live longer will receive more.
This keeps the system in balance. However, if people with shorter life
expectancies systematically take their pensions as early as possible, then
pension payments will inevitably have to be higher than that assumed in the
calculations. Individual behaviour is understandable and rational. This is not
ideal, at least from a pension policy perspective.
Click here for an abstract of the study.