The Finnish Parliament has approved a Bill (HE 16/2015 vp) providing for several material changes to pensions legislation. The main aim of the reform is to increase the number of years employees spend in working life as life expectancy is increasing. The Government also wants to ensure that pensioners will have sufficient pension benefits and living standards and to maintain the financial sustainability of the pension regime in general. The reform will come into effect on 1 January 2017. Some of the key changes are described briefly below.
Minimum retirement age increases for those born in 1955 or later
Currently, employees are entitled to retire between 63 and 68 years of age. Following the introduction of the reform, the minimum retirement age will increase gradually up to 65 for those born in 1955-1964. The retirement age will increase by three months per year until the limit of 65 has been reached. For example, for those born in 1955 the new minimum retirement age will be 63 years and three months, and for those born in 1956 it will be 63 years and six months. Accordingly, for those born in 1962-1964 the new minimum retirement age will be 65, whereas for those born in 1965 or later, the new minimum retirement age will be related to life expectancy. Each age group will have its own individual retirement age. The exact numbers are still open as they will be related to future life expectancy forecasts. The maximum increase in the retirement age may, however, be two months per year as of 2030.
An employer's obligation to arrange statutory pension insurance is extended
Employers will be obliged to arrange statutory pension insurance for employees who are 17 years of age (the obligation currently only applies in respect of employees who are 18 or older). Accordingly, employees will accrue their pension as of 17 years of age instead of 18. Employers are further obliged to insure their employees for a longer period of time due to the increase in the minimum retirement age. The upper age limit for an employer's obligation to arrange statutory pension insurance will be 68 years of age for employees born in 1957 or earlier, 69 years of age for those born in 1958-1961, and 70 years of age for those born in 1962 or later.
The current part-time pension system will be replaced with a partial early retirement pension. Employees will be entitled to take out some of their retirement benefits at the earlier age of 61. This would, however, diminish the amount of final retirement benefits. Unlike the current part-time pension system, the new system will allow employees to continue working without any limitations with respect to the salary they earn or working hours.
If an employee wishes to continue working after his/her minimum retirement age, the employee would receive a 0.4% increase per month on his/her pension accrual instead of the current fixed 4.5% increase.
The increase in the statutory retirement age may also result in difficult questions of interpretation on agreements between employers and employees providing for additional voluntary defined benefit pensions.
Comments from a Swedish perspective:
Substantial pension reforms were made in Sweden during the 90s. These reforms have been extensively discussed and scrutinized. However, no imminent changes are expected to the Swedish pension system. Currently, an employee is entitled to continue to work until the age of 67, according to mandatory law. However, the minimum retirement age is 61 in order to be entitled to the statutory retirement pension and there is no specified upper limit on when an employee must apply for such pension benefits. A longer period of employment and a higher retirement age will increase the pension received by the employee, thus creating an incentive to work for a longer period of time. Employers are required to pay social security contributions (Sw. arbetsgivaravgifter) in relation to all employees employed. These contributions also cover contributions to the Swedish statutory retirement pension system. Moreover, most Swedish employees are also covered by additional occupational pension schemes.