As a rule, the assets needed to finance pensions are collected with the pension contributions paid each year. Employer, employees and the self-employed pay pension contributions. This way, the working-age generation contributes to the pensions of those who have retired.
Employers and employees pay pension contributions. If you are an employee, your employer will automatically withhold your share of the contribution from your wages and pay the total contribution to the pension provider it has selected. If you are self-employed, you have to pay the total contribution yourself. You are considered self-employed if you:
- receive a grant in the art or sciences,
- are a farmer, or
- are a self-employed worker.
Part of the pension contributions collected each year are funded. They are set aside to make sure that there is enough money to pay pensions also in the future. The pension providers manage the pension funds.
Growing need for funds
The pension providers invest the funded components of the pension contributions that they collect as protectively and efficiently as possible. It is not enough to maintain the value of the investments. Instead, the pension providers strive for as high an investment return as possible.
Each year, part of the pensions that are paid out are financed with the investment return of the pension funds. As people in Finland live longer, the number of retirees compared to the number of working-age people keeps growing. The higher the investment returns are, the lower is the pressure to raise the pension contribution rate.
The assets in the pension funds cannot be used to pay for anything else than pensions.
In 2025, a total of 37.2 billion euros were paid in pensions. A total of 28.2 billion euros were collected as pension contributions.
Examine the Finnish Centre for Pensions’ statistics on financing of earnings-related pensions.
Wouldn’t a pension ceiling help ensure adequate funding?
The idea of introducing a pension ceiling is occasionally raised in public debate as a potential solution to the problem of insufficient pension funds.
What is a pension ceiling?
- A pension ceiling is usually defined as an upper limit in euros. It excludes a certain proportion of an individual’s accrued pension income.
- By contrast, a pensionable earnings cap means that only a certain proportion of a person’s earnings would count towards their pension. For example, only part of one’s salary would contribute towards pension benefits.
The concept of a pension ceiling conflicts with the protection of property rights guaranteed by the Finnish Constitution, which secures pensions as personal property. For this reason, it it makes more sense in Finland to consider the impact of a pensionable earnings cap on the earnings-related pension system.
When introducing a pensionable earnings cap, it is important to recognize that earnings-related pensions are based on the principle of insurance. According to this principle, a cap on pensionable earnings would also mean a cap on contributions. Pension contributions could not be collected from the part of earnings that does not accrue towards the individual’s pension.
The consequences of introducing a pensionable earnings cap would be as follows:
- Implementing a pensionable earnings cap would immediately reduce contribution income. This would add pressure on raising pension contributions.
- Contribution rates would need to be increased to make sure that accrued pensions could be paid out at the promised level.
- The contribution rates would increase for everyone, including those whose earnings remain below the cap. In practice, this would affect low- and middle-income earners.
- The financial balance of the pension system would only be restored after several decades.
Read the Finnish Centre for Pensions’ international comparison of pension ceilings.