A cross-national comparison of the relationship between statutory pension contributions and old-age pensions from the Finnish Centre for Pensions (ETK) has revealed that pensions were the least expensive in Sweden and Finland, where the contribution income for pensions was just over 12 per cent of GDP.

Eight countries were included in the pension contribution comparison: Denmark, Finland, France, Germany, Italy, the Netherlands, Norway and Sweden.

The comparison covered all contribution income paid by employees, employers, the self-employed and the state in 2020.

It revealed that the lowest old-age pension was about half of the contribution, while the highest was almost one and a half times the contribution.

They were the most expensive in Italy and Denmark, nearly 17 per cent of GDP. On average, the contribution income equalled more than 14 per cent of GDP.

“The comparison provides a good overall picture of the price of pensions in the countries included in the comparison, regardless of the structural differences in pension provision," said ETK liaison manager, Mika Vidlund.

If only statutory contributions were compared, Finland’s contribution level would seem much higher,” she added.

ETK special adviser, Antti Mielonen, explained that although there isn’t a direct link between pension contributions and pensions in the Finnish pension system, the relationship can be assessed using the cash flows of contributions and benefits.

“In Finland, the ratio between contributions and pensions varies considerably between age groups. For a Finnish 60-year-old woman, the ratio is the highest in the analysis at 1.42 – she receives almost half as much pension as she pays in contributions,” she continued.

“For a middle-aged Finnish man, the ratio of pension contributions is about one; that is, he receives about the same pension as he has paid in contributions.

However, younger people receive much less for their contributions. For example, the ratio for a 30-year-old man is 0.74,” she added.

In the analysis, the ratio measured how much a person paid in pension contributions in 2020 compared to how much they would receive as an old-age pension in the same year.

However, the assumed interest rate, along with the duration of pension payments, determination of pension amounts, indexing of pensions, and overall contribution levels of the pension system, significantly influenced the ratio between pension contributions and benefits.

Gender also affected the comparison, as women have a higher life expectancy, resulting in higher ratios than men in all countries.

The ratios of pension contributions to benefits in Sweden ranged between 0.70 and 0.90, while in Germany, it was low for all age groups, ranging from 0.57 to 0.90 – a reflection of its ageing population and the lack of funding reserves in the pension system, ETK suggested.

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