Improved pensions for the employees
The employer may offer supplementary pension benefits to the employees. The
promise of supplementary pension provision may be made in writing or orally, or
it may be in force implicitly as part of the “house rules”. The size of the
benefit, the retirement age, the preconditions for the promise and other factors
depend on the contents of the promise. The benefit may be offered to one
employee or to a whole group of employees. In practice the taxation restricts
the contents of the pension promises as regards the retirement age and the size
of the benefit.
In defined benefit schemes the employee is promised a certain pension
benefit. The benefit may be determined e.g. as a monthly pension in euros or a
certain percentage of the final salary. The size of the annual contribution
depends on both the size of the promised benefit as well as the length of the
savings period and the possibilities of flexibility in the payment of
contributions.
In defined contribution schemes no specific benefit level is promised;
instead the benefit is determined on the basis of the accumulated savings and
the returns on them.
The employer may fulfill the pension promise in several different ways. The
supplementary pension is typically arranged through supplementary pension
insurance with a life insurance company, or by establishing a pension fund for
the company. Some of these pension arrangements are old registered supplementary
pension arrangements under the Employees' Pensions Act (TEL), which are handled
by pension insurance companies.
The pension may also be paid directly from the company to the pension
recipient. Such benefits are not covered by all the tax restrictions (e.g.
retirement age and pension amount) which cover insurance-type arrangements. On
the other hand, in this kind of pensions paid directly from the company, the
employee carries a higher risk as to whether the pension promise will ultimately
be fulfilled. In addition, the administration of the pension is left for the
company to handle.
It is possible to ask for an estimate of the amount of the supplementary
pension from the pension provider or life insurance company handling
supplementary pension insurance.