The Finnish Pension System and Its Future Challenges


The Finnish pension system has succeeded in gaining high social, and reasonable financial sustainability. The balance between reaching the ambitious redistribution goals and minimising labour supply distortions is achieved with tax-financed, income tested basic pensions, income-tested basic pensions and a strong link between wage income and accrued pensions for middle- and high-income workers in the earnings-related schemes. These well-governed first-pillar schemes have high coverage and similar benefit rules. Second pillar occupational pensions are rare in Finland.

One of the secrets of its success has been the capacity to make extensive reforms when required. By law, the earnings-related pension scheme follows the defined benefit rule, where contribution rates adjust to shocks that weaken the contribution base or increase expenditures. In practice, however, an outlook of a strongly increasing contribution rate has often triggered a reform process. Both the negotiations and the full implementation of the reforms have taken time, but the outcomes have been largely accepted.

Intereconomics, Volume 55, March/April 2020, Number 2, pp. 92–96.

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