Finland

The pension system includes two pillars: (i) a universal pension with means-tested, subsistence level benefits for residents, financed on a pay-as-you-go basis (from employer and government contributions); and (ii) a defined benefit system of compulsory occupational earnings-related pensions. The universal pension is reduced by the amount of the earnings-related pension. Occupational pensions are partially funded and provide most retirement benefits.

By the end of 2008, pension providers in Finland managed roughly 72 billion euros (approximately US$100 billion) in assets for occupational pensions.

In 2008, in response to the international financial crisis, the government relaxed the rules on solvency ratios (pension obligations to pension assets) for pension insurance companies and pension funds for a two-year period; the higher the ratio, the more leeway providers have to invest in riskier asset classes. The 2008 measures allow pension providers to access certain reserve buffer funds in order to improve their solvency levels. This change has taken some of the pressure off of the investment process for many providers, by allowing them to continue to hold onto riskier assets (with higher potential return), rather than being forced to sell them in an unfavorable market. Two new working groups will consider more permanent changes to the solvency rules.

On March 1, 2011 a new guaranteed monthly minimum pension was introduced, supplementing the income-tested universal pension. Expenditures from the guaranteed pension are expected to amount to approximately 94 million euros (approximately US$ 130 million) in 2011. The government estimates that 120,000 pensioners, less than 10% of all pensioners - especially those with low income and women -, will qualify for the benefit.

The guaranteed pension is payable to those with total pretax monthly pension income below 687.74 euros (approximately US$ 950) in 2011. This threshold now becomes the total minimum benefit (universal pension plus guaranteed pension) payable regardless of the pensioner's family status, effectively increasing the maximum amount to 687.74 euros for both single individuals and for each partner in a marriage/cohabitating arrangement. Before the new regime, the corresponding amounts received were 586.46 euros (approximatel US$ 810) and 520.19 euros (approximately US$ 720), respectively. However, the benefit is reduced based on the value of other pension income received and residency of less than 40 years, and it is subject to income tax.

 

Article with courtesy of Social Security Online

Sources:Finland 2011: Country Manual, IBIS eVisor, 2011; Budget Review 2011, Finland Ministry of Finance, January 2011; "Changes to KELA Benefits in 2011," KELA-The Social Insurance Institution of Finland, January 21, 2011; "Finns Launch Solvency Committee," Nordic Region Pensions and Investment News, April 21, 2009; "Surviving the Global Crisis," Global Pensions, May 28, 2009; "Solvency Thaw Lifts Returns for Finnish Pensions," IPE.com, December 14, 2009; "Finland," pensionfundsonline.co.uk, 2010; Finland Ministry of Social Affairs and Health press release, February 11, 2010; "Finland Plans to Extend Solvency Measures to 2012," IPE.com, February 12, 2010; "Finland Proposes to Extend Pension Solvency Measures Through 2012, Prepares for Permanent Changes," Mercer Select Global, February 19, 2010.

 
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