The Finnish pension working groups have delivered on their task set by the country’s Prime Minister, Petteri Orpo, to agree on pension reforms for the earnings-related pension system.

This includes a reform to the investment regulation of occupational pension insurers to allow more equity exposure and the introduction of a third automatic stabiliser – the inflation stabiliser.

Orpo set out his plan for reform in his June 2023 Government Programme, tasking the social partners with making reforms equating to 0.4 percentage points of GDP, around €1bn. The social partners and government ministries began working on the reforms in October 2023, with a deadline of 25 January 2025.

The outcome of the negotiations on the pension reform has been agreed by the employees' confederations SAK, Akava and STTK and the employers' organisations EK and KT. The government has given its approval.

One element of the agreement is to improve investment returns on occupational pension assets by reforming the regulation of the investment activities of private sector occupational pension insurers. This includes several different elements aimed at a moderate increase in equity weightings.

It is welcome news to the earnings-related pension insurance companies which were supportive of such a reform.

Indeed, Elo CEO Carl Pettersson, said: “The most important element of pension reform concerns the investment of pension assets. In the future, it will be possible to seek more returns on pension assets, which means a more financially sustainable pension system in the long run.

“In practice, each pension company has the opportunity to implement a moderate increase in the risk level. This is done by increasing the share weight of investments, which means that a larger share of all invested capital is invested in shares.”

However, Finnish Pension Alliance (Tela) CEO, Suvi-Anne Siimes, while supportive of the reform, cautioned that it would not “offer any quick wins” and its “full benefits will only become apparent after several years or even decades”.

“The proposed changes are modest but offer a number of tools to improve investment returns in the long term. However, we believe that the reform maintains the requirement for adequate security in occupational pension investments," Siimes added.

The social partners have also agreed on the introduction of an inflation stabiliser, to be implemented in 2030, with a review of it in 2035. It is intended to reduce increases in contributory occupational pensions in situations where overall price increases outpace wage increases.

“The technical principles of the inflation stabiliser are clear and understandable. It also does not violate the core principles of the occupational pension. However, it is worth remembering that any cut or freeze in the index of earnings-related pensions will always have a lasting effect, because they are repeated in the everyday lives of pensioners year after year," Siimes explained.

By this, Siimes is referring to the fact that if the employment pension index increase is cut in one year, the cut portion of the increase will not be received in all future years.

Varma social access manager, Sampo Varjonen, said government ministers are already rushing to criticise the stabiliser as inadequate.

“In practice, the inflation stabiliser is unlikely to be used very often. However, it is not irrelevant. A year ago, it would have reduced index increases, and we would have been spared weeks of public debate in which politicians discussed cutting pensions and pensioners' participation in austerity measures,” he said.

Commenting generally on the reforms, Siimes, said: “Initially, I wondered whether this would be some kind of preliminary agreement on a new kind of pension system. We are now pleased to see that the current basic principles of occupational pensions seem to be working for all the key parties involved and that there is a willingness to continue to develop occupational pensions on this basis in the long term.”

Pettersson added: The Finnish pension system is better than its reputation. And with the recent pension reform, the system is once again a little stronger. It is valuable that in this time of uncertainty and uncertainty, common things can be achieved.”

As part of the outcome of the negotiations, the social partners also agreed on the next review dates for the system and undertook to propose any necessary changes to the occupational pension system. The level of the occupational pension contribution for the private sector up to 2030 was also agreed.

“The details of the outcome of the negotiations will be finalised during the forthcoming legislative process. Therefore, the more precise effects of the reform, for example on different generations, can only be reliably assessed at a later stage,” Siimes said.

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