Social part­ners present a reform proposal.

Social partners, commissioned by the Finnish government to draw up the pension reform, presented their Reform proposal at the end of January. According to this proposal, pension contributions towards the earnings-related pension in the private sector (TyEL) are to be reduced from the current 25.28 per cent to 24.4 per cent between 2026 and 2030. This reduction in contribution is to be offset by the proposed relaxation of the investment rules for TyEL reserves and the assumed higher return. In contrast, the calculation of pension entitlements and the regulations for adjusting the standard retirement age shall remain unchanged until 2030, in line with the increase in further life expectancy.

Strong role of social part­ners and pension insur­ance

In their June 2023 government programme, the Finnish government announced a pension reform with the goal of reducing the burden on public funds by approximately 0.4 percentage points of gross domestic product in the long term. In addition, the long-term level of pension insurance contributions is to remain stable.

The social partners were tasked with drawing up the reform proposals. The government would only have laid down their own measures if the social partners had been unable to reach an agreement. The Finnish Pension Insurance used their expertise to set the framework for the reforms and calculate the effects of the reform proposals. According to the calculations by the Finnish Centre for Pensions (ETK), the reform proposals will achieve the objectives set by the government and boost pension funding.

Invest­ment regu­la­tions reform

Earnings-related pensions in the private sector (TyEL) are financed by pension contributions from employers and employees. A small portion is covered by investment returns from the pension insurance fund's capital reserves. In recent years, the TyEL has built up substantial capital reserves. In 2023, these totalled approximately EUR 160 billion. This corresponds to almost 60 per cent of Finland's gross domestic product. The relaxation of investment regulations is intended to expand investment options, while increasing the return on the capital reserves. Among other things, it is proposed to lower the capital requirement for capital investments. The reform proposals explicitly accept an increase in investment risks and return fluctuations.

Pension adjust­ments to be reduced in the event of high infla­tion

Earnings-related pensions in the private sector (TyEL) are adjusted annually based on an index, 80 per cent of which is based on price trends and 20 per cent on wage trends. The sharp rise in inflation following Russia's war of aggression against Ukraine has led to significant pension increases in recent years, compromising the financial sustainability of the pension system. In response, the social partners are proposing a stabilising mechanism. This would reduce the annual pension adjustment if consumer prices rise faster than wages over a two-year period. However, this mechanism is to take effect only from 2030 at the earliest.

What's next?

The Ministry of Social Affairs and Health will convert the reform proposals submitted by the social partners into draft legislation. The goal is to conclude the implementation of the pension reform by this year.