Long-term projections by the Finnish Centre for Pensions

The long-term financial outlook for the Finnish statutory pension scheme has improved. According to the latest long-term projections by the Finnish Centre for Pensions, this is primarily due to the 2025 pension reform, which will give investment returns a greater role in financing pensions in future. Unlike in earlier projections, the authors currently see no immediate need for further increases in contribution rates. These developments are also significant to the pension reform debate in Germany. The Pension Commission (Alterssicherungskommission), established by the Federal Government to develop proposals for the long-term reform of the pension system, recommended supplementing the statutory pension insurance scheme with a mandatory funded pension component. The objective is to strengthen the long-term financial sustainability of the statutory pension scheme while making greater use of investment returns to finance retirement provision.

Reform strengthens the role of investment assets

Income-related pensions in the private sector (TyEL) in Finland are financed by pension contributions from employers and employees. A small proportion is covered by investment returns on the pension scheme’s capital reserves. Over recent years, the TyEL scheme has accumulated substantial reserves. In 2025, these amounted to around 290 billion euros. This is roughly equivalent to Finland’s gross domestic product. Under the 2025 pension reform, the investment regulations governing the capital reserve were relaxed in order to increase returns in the long term. To this end, higher investment risks and greater fluctuations in investment returns are being deliberately accepted. At the same time, returns on investments will play a significantly larger role in determining future contribution rates.

Contribution rate remains stable

According to current TyEL projections, the improved financial outlook is also reflected in the trend of the contribution rate, which has improved compared with the calculations from 2022.

The average contribution rate in the private statutory pension scheme is set at 24.4 per cent of the total wage bill until 2030. In the baseline scenario, the contribution rate then falls to around 22 per cent by the 2040s, before rising again from the middle of the century. In addition to the reform, the projections incorporate updated demographic assumptions, including higher net migration and a persistently lower birth rate.

Capital stock could grow to 1.3 trillion euros

However, this favourable development presupposes that real returns on capital of 3.2 per cent initially and later 3.75 per cent per annum are achieved in the long term. Under these assumptions, the capital stock   – at current prices – could grow from the present level of 290 billion euros to around 1.3 trillion euros. Measured against annual pension expenditure, this would mean that the assets would almost double. This highlights the growing importance of funded elements for the long-term financing of the system.

Higher potential returns go hand in hand with greater risks

The long-term projections also show that a greater reliance on investment assets offers higher return potential but at the same time increases uncertainty regarding future contribution rates. The Finnish Centre for Pensions therefore emphasises that the projections themselves become more uncertain as investment income assumes a larger role. To address this, the Centre advocates adopting conservative assumptions regarding future investment returns.