The latest pension reform entered into force at the beginning of 2017. The amount of pension depends on the total amount of annual earnings during the work career. This section briefly outlines the basic principles of the pension provision of employees in the private sector. The regulations concerning employees in the public sector are slightly different, and information on them can be found e.g. on the websites of Keva and the Office for the Government as Employer (VTML).
Statutory earnings-related pension provides security in case of old age, disability, family breadwinner’s death, and unemployment of an ageing person.
Further information on earnings-related pensions can be found at tyoelake.fi.
- Arrangement of earnings-related pension provision
The employer is obliged to arrange pension provision for its employees. Regardless of the industry or duration of employment of the insured, all private sector employees shall be insured under TyEL. The accrual of seamen’s pension is regulated by the Seamen’s Pensions Act (MEL). Self-employed persons shall arrange and pay for their pension provision by themselves. The employer’s obligation to insure starts at the beginning of the month following the employee’s 17th birthday and ends at the end of the month in which the employee turns 68.
- Earning and amount of earnings-related pension
Earnings-related pension accrues on the basis of the salaries earned in each year. Pension accrues from the age of 17 to 68 years. Pension accrues according to a certain accrual percentage depending on the age of the insured. There is no ceiling in the pension system, but all work up to the age of 68 accumulates pension.
Age Accrual percentage
53–62 1.7% (during transition period from 2017–2025)
If an employee continues at work beyond the lower limit of the old-age pension, an increase of 0.4% per month will be added to the basic accrual for each postponed month.
If a person is not paid a salary but receives an earnings-related social benefit, a certain percentage of earnings-related pension accrues based on the earnings used as the basis of the benefit, depending on the type of social benefit. Below is a list of the accrual percentages of some benefits:
- maternity, paternity and parental allowance periods, 117%
- unemployment allowance, 75%
- sickness and accident allowance, 65%
- alternation leave, 55%
In calculating the pension accrual for unsalaried periods, the accrual percentage is always 1.5% per year.
- Projected pension
The regulations of projected pension concern disability pension and survivors’ pension. In those cases, the projected time i.e. the time left to the lowest retirement age will be included as time that entitles to pension on certain terms for those retiring on pension before the retirement age. The projected pension is calculated using the annual accrual of 1.5%. As a general rule, the projected pension is determined on the basis of the earnings in the last five calendar years preceding the retirement (review period). The precondition for receiving projected pension is that the employee has at least 12,566.70 euros of earnings from work in accordance with the earning-related pension acts during the ten calendar years preceding the disability.
- Old-age pension
An employee is entitled to retire on old-age pension from the beginning of the month following the reaching of the lowest retirement age. The amount of pension is the pension earned by the time of retirement.
An employee’s lowest retirement age on old-age pension is determined according to the year of birth as follows:
1) those born in 1954 or earlier: 63 years
2) those born in 1955: 63 years and 3 months
3) those born in 1956: 63 years and 6 months
4) those born in 1957: 63 years and 9 months
5) those born in 1958: 64 years
6) those born in 1959: 64 years and 3 months
7) those born in 1960: 64 years and 6 months
8) those born in 1961: 64 years and 9 months
9) those born in 1962–1964: 65 years.
The lowest retirement age on old-age pension for those born in 1965 or later will be adapted to the change of lifetime in accordance with sections 82 and 83 of the Employees Pensions Act, and the age will be confirmed by a decree of the Ministry of Social Affairs and Health for the year in which the employee turns 62.
So an employee can continue to work up to the age of 68 years if they choose so. Before that the employer can only terminate the employment on the general grounds for terminating the employment. The employment relationship will, however, end without a notice of termination and period of notice at the end of the calendar month in which an employee born in 1957 or earlier turns 68, an employee born in 1958–1961 turns 69, and an employee born in 1962 or later turns 70.
Retiring on pension can also be postponed beyond 68–70 years. That requires an agreement between the employee and employer.
- Partial early old-age pension
The pension system was reformed in 2017. In the reform, part-time pension was replaced with partial early old-age pension which has been paid from 1 February 2017 on. Part-time pensions granted before 2017 will continue as they are. An employee can retire on partial early old-age pension, at the earliest, at the beginning of the calendar month following the reaching of the lower age limit determined according to their year of birth.
The lower age limit for employees’ partial early old-age pension is determined as follows:
- for those born in 1963 or earlier the lower age limit is 61 years.
- for those born in 1964 the lower age limit is 62 years
- for those born in 1965 or later the lower age limit is for partial early old-age pension will be adapted to the change of lifetime in accordance with sections 82 and 83 of the Employees Pensions Act.
The partial early old-age pension is based on the pension earned according to the earnings-related pension acts by the end of the calendar year preceding the start of pension. The pension share is, according to the employee’s application, either 25 per cent or 50 per cent of the amount of pension used as the basis for partial early old-age pension.
The pension share of partial early old-age pension will be permanently reduced by 0.4 per cent for each month by which the starting time of that pension share is predated before the beginning of the calendar month following the employee reaching the lowest limit for old-age pension (reduction for early retirement).
The pension share of partial early old-age pension will be increased permanently by 0.4 per cent for each month by which the starting time of that pension share is postponed beyond the beginning of the calendar month following the employee reaching the lowest limit for old-age pension (increase for late retirement).
Partial early old-age pension will be replaced by old-age pension when old-age pension is granted to the employee.
The goal of partial early old-age pension is to make the pension system more flexible. In the new system it is possible to withdraw part of the pension already before the actual retirement age. Partial early old-age pension does not depend on working, but the recipient of pension can choose whether he/she will continue working or not.
- Disability pension
Disability pension can be granted to a person who is at least 16 years old until he/she reaches the retirement age. Disability pension can only be granted to a person under 20 years old, if it is not possible for him/her to participate in vocational rehabilitation or his/her vocational rehabilitation has been interrupted due to an illness or his/her vocational rehabilitation has ended without yielding any results.
A disabled person is someone who due to an illness, defect or injury is unable to carry out his/her regular work or other comparable work which shall be considered suitable to him/her and providing reasonable livelihood, taking into account his/her age, professional skills and other factors. If the recovery of working ability is unlikely, disability pension will be granted until further notice.
Disability pension granted for a fixed term is rehabilitation benefit. If it can be assumed that the working ability will be recovered at some point, rehabilitation benefit will be granted for a fixed term. A special treatment and rehabilitation programme will be drawn up for the recipient of rehabilitation benefit, which will strive to determine what kind of work the person could carry out in the future, taking into account his/her education and work history.
Disability pension is always granted permanently to the blind and those unable to move, as well as persons who due to their illness, defect or injury are permanently in so helpless state that they cannot cope without assistance of another person.
Disability pension shall not be granted to a person who receives early old-age pension.
- Pension reform
You will find plenty of information about the pension reform on the website maintained by the Finnish Centre for Pensions with information provided by the parties that prepared the pension reform. Eläkeuudistus.fi.