The Finnish President, Alexander Stubb, has approved legislation introducing a package of pension reforms aimed at strengthening the long-term sustainability of the country's earnings-related pension system.

The legislation was signed at a presidential session on 16 June and marks the final stage of the reform process before the first measures take effect on 1 July 2026.

The reforms are based on an agreement reached by labour market organisations in January 2025 and were subsequently approved by the Finnish parliament earlier this year.

The first phase of the reforms will see an update to the solvency framework for private-sector employment pension insurers from 1 July 2026.

Under the changes, the solvency limit governing the investment activities of employment pension insurers will be lowered by around one-third, allowing pension providers to take greater investment risk and adopt a riskier investment mix than previously permitted.

An expansion of borrowing capacity for real estate investments will also take effect from 1 July 2026.

Previously, employment pension insurers could use debt financing in direct real estate investments only in certain cases related to the production of rental housing.

Under the new rules, borrowing will be permitted for all real estate investments made by subsidiaries of employment pension insurance companies.

The reforms are intended to improve long-term investment returns and strengthen the financial position of the earnings-related pension system.

A second phase of reforms will take effect on 1 January 2027, when the funding of private-sector employment pensions changes, with a portion equivalent to 0.5 percentage points of annually accrued pensions set aside, up from 0.4 percentage points previously.

The change will increase annual old-age pension funding by 0.9 per cent of wages.

According to the Finnish Pension Alliance (Tela), the measure will have a significant impact on the long-term financial balance of the employment pension system.

Further changes to the equity-linked portion of the return requirement for technical reserves and the equity-linked supplementary insurance liability will also take effect from 1 January 2027.

The share of the return requirement linked to equity returns will increase to 25 per cent from January 2027 and rise further to 30 per cent from 1 July 2027.

Tela said the changes would enable employment pension insurers to increase the proportion of equity investments in their portfolios and seek higher long-term returns, while the phased implementation would allow the additional investment risk to be introduced gradually.

The reforms also introduce an index cap from 2030, designed to limit increases in pensions in payment in situations where consumer prices rise faster than wages.

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