Government decided on removing the unemployment path to retirement

The Finnish Government has decided to remove the additional days of unemployment security. The amendment will enter into force gradually from 2023 on. The purpose is to improve the employment rate of over 55-year-olds. The removal of the unemployment path to retirement may weaken the livelihood of aged unemployed persons. The overall reform package also includes other measures.

The effect of the removal of the unemployment path to retirement

  • According to the Government plans the removal of the unemployment path to retirement would start gradually in 2023.
  • The amendment will not affect the additional days that have already been granted.
  • The amendment will not affect those born before 1963.

  • The amendment will shorten the right of those born in 1963 and 1964 to additional days.
  • Those born in 1965 or later can no longer be granted additional days of basic or earnings-related daily allowance.

Additional days of earnings-related daily allowance

According to the current legislation, basic or earnings-related daily allowance can be paid to an employee on certain conditions without being prevented by the maximum period until the applicant retires on pension. The model has secured the livelihood of aged employees up to the beginning of old-age pension.

These rules have, in practice, created an unemployment path to retirement. At the same time the financing of the additional days involves the liability component of unemployment security which has in practice increased the employer’s payment risk as the employees are ageing.

The arrangement allows employees to leave the working life before the retirement age, and at the same time it creates an incentive for employers to offer ageing employees an opportunity to leave the working life. One undesirable side effect is that the threshold for hiring a job applicant who is approaching the retirement age may have risen. The structure has resulted in a situation in which the employment rate of aged people in Finland is low. That is also unpleasantly visible in the members of YTK among whom the unemployment rate of those close to the retirement age is more than double compared to the average.

Removal of the unemployment path to retirement

The Government announced that the possibility to receive additional days of unemployment security will be removed. The amendment will enter into force gradually from 2023 on in such a way that the minimum age for additional days will rise by one year for each age class born in 1963 or later. The opportunity to receive additional days will be removed completely from those born in 1965 or later.

At present, the right to additional days is possible, if

  • You were born in 1955 or 1956 and you have turned 60 before the maximum period ends
  • You were born in 1957–1960 and you have turned 61 before the maximum period ends
  • You were born in 1961 or later and you have turned 62 before the maximum period ends

According to the entry recorded in the Government’s decision, the right to additional days would be removed from 2023 on as follows:

The right to additional days is possible, if

  • You were born in 1963 and you have turned 63 before the maximum period ends
  • You were born in 1964 and you have turned 64 before the maximum period ends

The right to additional days no longer exists, if

  • You were born in 1965 or later

The details on the removal of additional days will be clarified, when the law concerning the matter will later be prepared in tripartite co-operation. It will also affect the matter, if changes are made to the maximum payment period.

Restructuring protection, pay subsidy and other details

To counterbalance the removal of additional days, the Government announced many other employment promotion measures that will support the employment of people aged 55 and older.

In addition to the current restructuring protection, a new restructuring protection package will be created. This new restructuring protection package will provide all over 55-year-olds who have been at the service of the same employer for over 5 years with two months of training and one month of redundancy compensation corresponding to the employee’s salary that will not postpone the starting of the payment of unemployment allowance. In addition, the employment leave under the current restructuring protection will be extended.

The new restructuring protection package would enter into force gradually from 2023 on. The employers would contribute to the financing of the restructuring protection in such a way that the current liability component and the new restructuring protection component will be taken into account in the arrangement.

From 1 January 2023 on, long-term unemployed who have turned 55 years would be entitled to receive pay subsidy for ten months. At the same time, the maximum amount for earned income deduction would be increased.

Regarding TE services, the employment of the aged will be supported from 1 January 2023 on in such a way that the employment leave under restructuring protection could in the future also be used to map skills and working capacity and to start training as part of restructuring protection. In addition, the re-employment of dismissed employees would be accelerated so that employees can register as job-seekers, map their skills and working capacity, and draw up an employment plan during the notice period.

The employment rate will also be improved so that people aged 55 years and older who have worked for the same employer for a longer period will be given better opportunities to switch to part-time work of they so wish. According to the current legislation, switching to part-time employment at the employee’s initiative prevents the payment of unemployment benefit. No amendments would be made to the Unemployment Security Act, however. Instead, the change would be implemented by developing the Working Hours Act and the Employment Contracts Act.

Furthermore, employees’ ability to continue to work would be promoted through amendments to the Occupational Safety and Health Act and by implementing the proposals of the rehabilitation committee.

Entry into force of the amendments

According to the decision, the amendments would enter into force on 1 January 2023. The legislative amendments will be prepared in tripartite co-operation.

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