Retiring flexibly - old-age pension in a nutshell
You may retire on an old-age pension
anywhere between the ages of 63 and 68. You may also retire on an old-age
pension taken early at the age of 62, or postpone your retirement past
the age of 68. In order to receive the old-age pension, you will need to
complete a pension application. It is a good idea to submit the application
approximately two months before the intended retirement date.
Before old-age pension may begin, you will need to terminate
your employment.
If you are self-employed, you may continue
your self-employment after retiring on an old-age pension. If you choose to
continue your self-employment alongside receiving an old-age pension, you may
take out voluntary YEL insurance for yourself.
If you retire on an old-age pension from the public
sector, you may have a professional or personal retirement age. The
public-sector professional retirement age is usually lower than 63 years, and
the personal retirement age is usually between 63 and 65. However, you may
retire on an old-age pension at 63, before your personal retirement age, but in
such case your pension accrued by 1995 will be reduced. The reduction does not
apply to persons born in 1960 and later.
In public-sector employment contracts already ended, the
retirement age is 65. If you take out the pension before 65, the pension you
have accrued before 1995 will be reduced.
More detailed information on public-sector pensions is
available from the State Treasury and the Local Government Pensions Institution,
which also handles the pension provision of employees of the
Evangelical-Lutheran Church in Finland.
For seafarers, the general retirement age is
between 63 and 68. More detailed information is available from the Seafarer's
Pension Fund.
Old-age pension taken early
You may retire on an early old-age pension at the age of 62. A
reduction for early retirement is made to the pension accrued
by the pension start date. The reduction is 0.6% for each month of pension
taken out prior to your 63rd birthday. Taking the pension early by a whole year
reduces it permanently by 7.2%. The reduction is permanent.
Deferred old-age pension
You may defer your old-age pension past the age of
68. Deferring it increases the pension by 0.4 per cent for each month
for which the pension is deferred. Terminating work is not a requirement for the
granting of a deferred old-age pension.
Other pension changed into old-age pension
If you receive disability or unemployment pension, it will
automatically change into an old-age pension at the age of 63 or 65, depending
on when your other pension began. A pension begun before 2006 changes into an
old-age pension at the age of 65, and a pension begun in 2006 or later changes
into an old-age pension at the age of 63.
If you have been working alongside receiving a disability or
unemployment pension in 2005 or later, new pension will have accrued from your
work. This new pension is not paid out automatically, but must be applied for by
filling out a pension application. The prerequisite for receiving the pension is
that the work has ended.
A part-time pensioner must separately apply for old-age
pension. It can be applied for between the ages of 63 and 68. However, part-time
pension for those born in 1946 and earlier will end at the age of 65 at the
latest, even if the part-time work was to continue. The final old-age pension
cannot be awarded until the work has ended.
Amount of the old-age pension
The pension is nowadays calculated based on earnings from each
year and an age-determined accrual rate. The pension of a self-employed person
is calculated based on the annual YEL income and an age-determined accrual
rate.
Earnings from work as well as unsalaried periods are taken
into account when calculating the pension, right up until the month of your
63rd birthday.
If your earnings-related pension is small, you may also
receive national pension. The old-age retirement age for national pension is 65
years, but you may also take it early from the age of 62 onwards. The national
pension is affected by the earnings-related pension accrued by the age of 63.
Additional information is provided by the Social Insurance Insitution, which
pays the national pension.
Change in pension calculation
There are two methods being used for calculating
earnings-related pension: one for pension accrued by the end of 2004, and one
for pension accrued since the beginning of 2005. Until the end of 2004, old-age
pension was calculated based on the duration of each employment contract and the
average wage forming the basis of the pension. For the self-employed, pension
was calculated based on the average income during self-employment. Since the
beginning of 2005, earnings-related pension is calculated based on earnings from
each year and an age-determined accrual rate. The pension of a self-employed
person is calculated based on the total earnings for each calendar year, and an
age-determined accrual rate.
If you retire no later than 2011, your pension may thus be
calculated using both methods. However, this is the case only for employment
contracts under the Employees Pensions Act that have begun before 2005 and
continued without interruption until retirement. Pension accrued from such an
employment contract will be calculated using both sets of rules. If the pension
calculated based on the old rules is greater, the difference will be added to
your pension.
Impact of the life expectancy coefficient
The life expectancy coefficient is used to adjust the
pension level to life expectancy, with the aim of controlling pension
expenditure.The coefficient is set for each age group at the age of 62, and is
calculated based on mortality statistics from the five previous years.
If the average life expectancy increases, the coefficient will
lower the accrued monthly pension. This reduction can be countered by working
longer. The pension accrued by the start of the old-age pension is adjusted by
the life expectancy coefficient confirmed for the year in which the pension
applicant turned 62. If old-age pension begins prior to the applicant's 62nd
birthday, the old-age pension is adjusted by the life expectancy coefficient
confirmed for the pension start year.
The coefficient is implemented for the first time in
2010.
Internal links: Registered
supplementary pension, Calculating the pension
External links: Finnish Centre
for Pensions, Seafarer's
Pension Fund,Local Government
Pensions Institution, State
Treasury