A new (Nordic) trend?

A draft law, that is still in the consultation phase, from the Finnish government proposes that the payment of old-age and disability pensions to recipients in EU countries and the European Economic Area be discontinued in 2025. This draft law is part of a reform package that will strengthen the financial sustainability of the Finnish pension system. This means that these pension benefits would then be categorised as minimum security benefits. The financial advantage for Finland: Unlike pension benefits, minimum security benefits do not have to be exported under European regulations covering how social security systems are to be coordinated. Finland will be following Sweden, which stopped paying the Swedish guaranteed pension to other EU countries in January 2023.

Equal treatment in the country of residence

Regulation (EU) No 883/2004 includes a wide range of provisions covering pension benefits. This is also the case in Article 58 regarding financial allowances to which pensioners are entitled in their country of residence, even if they have acquired all or part of their pension rights in other member states. This "supplementary allowance" corresponds to the difference between the minimum benefit paid to the elderly in their country of residence and their acquired pension entitlements. It should ensure that pensioners receive the same minimum benefits in their country of residence, regardless of where they previously worked.

A judgement and its consequences

The ECJ issued a ruling about the Swedish guaranteed pension in 2017. The Swedish guaranteed pension is tax-financed and benefits are acquired in accordance with periods of residence in Sweden. Beneficiaries must have lived in Sweden for at least three years to be eligible. 40 years of residence are needed to be eligible for a full guaranteed pension. The entitlement is "pension-tested", i.e. entitlements from income-related statutory pensions are taken into account. In the Zaniewicz-Dybeck case, the Court of Justice ruled that periods of insurance and residence completed in other EU member states must also be taken into account when calculating the Swedish guaranteed pension analogous with Swedish residency periods. Therefore, the tax-financed guaranteed pension is a supplementary allowance within the meaning of Article 58 and is categorised as a minimum security benefit to which all pensioners living in Sweden are entitled. As a result, the Swedish government has decided to categorise guaranteed pensions as income-tested minimum security benefits. This means that the legal basis for granting this benefit to EU citizens living in other EU/EEA countries, which was previously applicable under Article 58 of the Regulation covering how social security systems are to be coordinated, no longer applies. The Swedish guaranteed pension, an income-tested minimum security benefit for people born in 1938 or later, has not been exported since 1 January 2023.

Finland will be following Sweden

Like Sweden, the Finnish government has introduced a draft law that envisages abolishing the portability of the tax-financed national pension as from 1 January 2025. This decision will also affect pension payments already granted under the national pension scheme. However, survivors' pensions are not affected by this. The statutory income-related pension is also not affected. This is a compulsory, income-related pension of the Bismarckian type. The Finnish pension system also has a basic pension, which is defined as a minimum pension for the elderly, which is subject to income tax and is not currently exported to other EU or EEA countries.

And the losers are...

...primarily Finns and Swedes living in their neighbouring countries. The Swedish amendment to the law that came into force on 1 January 2023 affected 58,000 recipients of the guaranteed pension living in other European countries, and this included over 23,000 pensioners living in Finland. According to the Finnish Social Security Institution (KELA), the cessation of national pension payments to other European countries would probably impact 24,000 people, including around 18,000 Finns living in Sweden.

The effect on the free movement of people within Europe should not be underestimated. Citizens rely on freedom of movement across national borders with the most complete coverage possible. For comparatively small savings, KELA estimates that the annual savings that will be made by the Finnish legislative proposal at 38 million euros, the two Scandinavian governments are accepting this with all its possible consequences for intra-European mobility.