The social partners were ordered by the Government of Finland to negotiate a pension reform, which was achieved on 19 January 2025. The boards of all social partners and the Government have approved the negotiated plan.
The aim of the Government commission was to clarify the concrete changes to the earnings-related pension system that are necessary to ensure financial sustainability and safeguard adequate benefit levels. The task was to agree on changes that would strengthen public finances in the long term by 0.4 percentage points in relation to GDP and stabilise the long-term pension contribution level. This aim amounted to an adjustment of one billion euro.
One billion euro adjustment aim exceeded
‘We achieved and exceeded the aim set by the Government. The pension reform will strengthen public finances in the long term by about 0.57 percentage points in relation to GDP. This amounts to an adjustment of around 1.5 billion euro. The work of our group focused on long-term changes, which in pension policy means a timespan of several decades’, explains Senior Specialist Katri Ojala.
‘The reform was not about short-term changes, but focused on long-term changes. The retirement age and pension benefits stay the same and the level of pension contributions was not raised’, stresses Senior Specialist Katri Ojala.
The level of pension contributions will remain the same until 2030, that is, the earnings-related pension contribution will stay at 24.4 per cent for the next five years. Stabilising the contribution level is significant for employees but especially for the financial planning of companies. The aim is to fight future contribution increase pressures by strengthening the financing of the system. The everyday life of employees and current pensioners will experience very little effect, since there were no changes to the retirement age or pensions.
Investment reform highly significant for the financing of the pension system
The reform allows pension providers to raise the risk level of their investment activities by increasing the equity weight of their portfolio, which should increase the investment returns in the long run. The funding of old-age pensions was also strengthened, which evens out the increased investment risk across generations.
‘Greater risk-taking and higher returns on investments, by default, lower the increase pressures on contributions. Of course, higher risk does also somewhat increase the possibility that a significant failure in the investment activities would necessitate raising the contributions to a higher level than is possible with investment strategies under the current rules. The reform significantly improves old-age pension funding by increasing the share of annual pension accrual that is funded from the current quarter to one third’, explains Labour Market Economist Eugen Koev.
‘Even a small increase in investment returns is considerable for securing the financing of the earnings-related pension system. The investment reform fulfils about half of the reform’s aim of stabilising public finances’, says Ojala.
‘The reform includes the adoption of an inflation stabiliser by 2030. It may be applied if consumer prices develop faster than wages over a period of two years. This mechanism adjusts the index increases of pensions in payment in such exceptional situations’, Koev says.
‘It is great that we managed to negotiate a solution with the social partners and that the tradition of developing our earnings-related pension system demonstrated its functionality’, says Labour Market Economist Eugen Koev.
‘The pension reform achieved the set goals, but the sustainability of our pension system financing can be influenced using other means as well. Of significance are, for example, employment, labour immigration and birth rates. It is important to influence matters in a way that assures that work careers are not cut short by early retirement. This is why we should and must invest in, for example, the prevention and timely treatment of mental health issues. The increase in disability pensions among young people is worrying for both individuals and society at large’, Ojala emphasises.
‘We can be satisfied with the reform from the perspective of intergenerational equity too. From time to time, there is a need for scheduled updates; that is the nature of the pension system. With this agreement, the social partners committed to a periodic inspection to assess the sustainability of the system’, Ojala says.
More information about the pension reform
on the Finnish Centre for Pensions website https://www.etk.fi/en/finnish-pension-system/pension-reforms/pension-reform-preparations-2023-2025/
Text Ritva Siikamäki
Photo Ida Pimenoff, Liisa Takala (Katri Ojala and Eugen Koev)
