A Finnish pension reform working group has been created but the Finnish Pension Alliance (Tela) has warned of the “serious risk” if changes are made to the automatic stabiliser within the pension system.

Prime Minister, Petteri Orpo, announced the reforms to the pension system last week, and has tasked labour market organisations with making changes that will save the welfare state €1bn. Since then, the Ministry of Social Affairs and Health and the Ministry of Finance have set up a working group to investigate the reform of the occupational pension system.

Members must be nominated by 16 October, with representatives from the Ministry of Social Affairs and Health, the Ministry of Finance, the Confederation of Business, Municipal and Welfare Area Employers, the Central Association of Finnish Trade Unions, STTK, Akava and the Pension Security Centre all forming part of the group.

Head of department, Liisa Siika-aho, from the Ministry of Social Affairs and Health is appointed as the chair of the working group, and the vice-chair will be appointed from the Ministry of Finance. Its term of office ends on 31 January 2025, after which the working group's proposals will be compiled into a board proposal.

However, Tela has warned that the introduction of a rule-based stabilisation system, which was mentioned in the objectives of the mandate for the working group, poses a “big risk for current and future pensioners”.

She believes such a system is a “big unknown” that could see pension security being used to make up for deficits in other public finances. Rule-based stabilisers are adjustment mechanisms that aim to stabilise the financing of the pension system by means of predetermined rules. The consolidator could cut the index increases of paid-in occupational pensions, pensions accrued to working people, or both.

“Alternatively, the financing of pensions could of course be adjusted not only by cuts in pension benefits but also by increasing the pension contribution. However, it can be difficult because the stabilisation of the payment has now been set as one of the objectives of the assignment,” Siimes explained.

There are three moving elements in the financing of occupational pensions: pension payments, income from occupational pension investments and pension benefits. Siimes would keep all elements of the equation on the table when planning the pension reform.

“A reform aimed at improving investment returns can solve a large part of the need for adjustment. It is hardly the whole solution, however, because a rules-based stabiliser is also involved in the assignment,” Siimes stated.
Siimes sees that the introduction of such a stabiliser, regardless of its implementation method, would be a fundamental change to the principles of Finnish occupational pension security.

“A rules-based stabilisation system would be a big change to Finns' benefit-based pension security, where the earnings-related pension is paid in the amount earned and protected from inflation. Is there enough time for the assessment of the long-term effects of the stabiliser and the social discussion about them, when the negotiation result is supposed to be reached by the end of January 2025?” Siimes asked.

Tela is, however, in agreement with the task of saving so much money as its CEO, Suvi-Anne Siimes, noted: “The direct savings target given to the pension reform is in itself quite close to the estimates that the Employment Insurance Insurers and the Pension Insurance Centre have presented about the funding shortfall of the private sector's occupational pension system in the long term.”

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