Pension Reform Takes Effect at Turn of the Year

Finnish earnings-related pensions have been reformed. The reform will take effect on 1.1.2017. Pension accrual rates will change immediately. The first new partial old-age pensions can be granted as of February 2017. In practice, the retirement age will rise in 2018. It will be possible to apply for the new years-of-service pension at the end of spring 2017. The first years-of-service pensions will be paid as of 1.2.2018.

The retirement age will rise gradually by three months per year from the current 63 years to 65 years. People born in 1955 will be affected first. Their retirement age will be 63 years and 3 months. People born between 1962 and 1964 can retire at age 65. After that, the retirement age will be linked to life expectancy.

Each age group will also have a target retirement age, which is slightly higher than their normal retirement age. By working until your target retirement age, you can offset the cutting effect of the life expectancy coefficient that reduces you pension if you retire at your normal retirement age. The target retirement age for each age group will be calculated five years before the age group’s retirement age.

Standardised pension accrual rates

If you are between 18 and 52 years old, you will accrue a pension at a rate of 1.5 per cent of your annual earnings. During a transition period from 2017 to 2025, the accrual rate is 1.7 per cent if you are between the ages of 53 and 62 years. If you are an employee, you will accrue a pension as of age 17. If you are self-employed, you will accrue a pension as of age 18.

As of 2017, the earnings-related pension contributions that you have paid will no longer be deducted you’re your pensionable wages. That means that the earnings on which your pension is based will be slightly higher than before.

Working longer will increase the pension

If you do not take out your pension when you reach your retirement age, your pension will rise by 0.4 per cent for each month that you postpone retirement. For example, if you retire one year late, your pension will be 4.8 per cent higher.

The increase for late retirement is intended to encourage people to continue working past their retirement age.

Partial old-age pension and years-of-service pension

At 61 years, you can retire on a partial old-age pension. You can take out 25 or 50 per cent of the pension that you have earned. The part of the pension that you take out will be reduced by 0.4 per cent for each month that pension is taken out early. In other words, if you take out part of your pension one year yearly, that part will be reduced by 4.8 per cent. The reduction is permanent. If you retire on a partial pension, you can continue in full-time or part-time work. You can also stop working altogether. The first partial old-age pensions can be granted as of 1.2.2017.

You can receive the years-of-service pension at age 63 at the earliest. The first years-of-service pensions can be paid out on 1.2.2018. You can apply for a preliminary decision on the years-of-service pension as of the end of spring 2017. To receive a years-of-service pension, you must have done mental or physical work that requires great effort for at least 38 years. In addition, your ability to work must have been reduced.

The main aims of the earnings-related pension reform are to encourage people to work longer, to stabilise the pension contribution rate and to ensure that also the younger generations will receive adequate pensions.

 

More news