Helsinki (02.08.1998 - Rauno Pentti) Finns are currently engaged in a lively debate about the statutory pension insurance system and the financing of future pensions.   Experts have presented a wide range of views and calculations in the course of this debate.  Some experts believe that the present pensions system is adequate to meet future needs, while others are more doubtful and call for changes to the system.

Conflicting visions as to how future pensions will be financed are worrying citizens. More than 80 per cent doubt society's ability to ensure adequate pension security in the years to come. As many as three out of four people believe that politicians don't take the issue seriously enough.*

Carin Lindqvist-Virtanen, senior researcher at the Ministry of Social Affairs and Health, considers citizens' concern understandable. "Our present national pension system, which provides basic social security for all, was created in the 1930s, and the earnings-related pension system goes back to the 1960s. In the beginning, both schemes were very feasible, as many paid pension premiums but few people were retiring.  Now things have changed. The population is ageing, and the number of people retiring is growing at an alarming rate.  There is, quite naturally, cause for concern about the capacity of the pension system to withstand financial pressure," she explains.

All the same, Lindqvist-Virtanen believes that the situation can be kept under control in the years to come. "If the national economy grows steadily and unemployment can be reduced to a reasonable level, in my view we have nothing to worry about. The impending retirement of the post-war baby-boomgeneration will not change the situation all that much."

According to Lindqvist-Virtanen, the national pensions are appropriated from the State budget on the basis of a pay-as-you-go scheme. The funds needed for the employment pensions and the day-to-day pension expenditure are collected from employers and employees.

"As far as the national economy is concerned, both the pay-as-you-go scheme and the funding scheme are of almost equal significance. The pay-as-you-go scheme, however, reacts more slowly to changes, as the monies available depend on the number of people receiving pensions, on the one hand, and on those paying pension premiums, on the other hand. The funding scheme is a more flexible system, as it means that one third of the funds available are set aside to balance the fluctuating need for financial resources," she says.

Lindqvist-Virtanen adds, that the financing of pensions is based on distribution of the national economic' "pie". "In other words, the question is: Do we think that every one contributes to the result? Or do we think that the outcome is the result accomplished through the persistent efforts of only some people? I believe that the majority of Finns will continue to support a system based on equality, which also means that the economy of senior citizens should be safeguarded."

There are, of course, people who aren't convinced by the optimistic calculations. Many experts and politicians have demanded higher returns on the monies invested by the pension funds. They have suggested, for instance, that the funds should adopt a more liberal investment policy.

"The Government has, in fact, accepted the principle that pension funds may make investments on the open market and be more exposed to market fluctuations. That should increase the returns, although a greater element of risk is involved.  To counteract the risks, the insurance companies administering pension funds should increase their equity as a buffer against stock market losses. Furthermore, we need to determine the upper and lower limits as to what share of the funds may be invested. These measures should prevent risky speculation with pension funds," she continues.

Increasing the employee's share of the pension premium considerably has been suggested as a further means of reinforcing pension funds. It is thought that this would motivate employees to accumulate more earnings-related pension, and would increase their interest in profitable investments by pension funds. "Increasing the employee's share of the pension premium may have the desired effect, as long as we don't loose sight of future pensioners who cannot accumulate their own pensions, for whatever reason," Lindqvist-Virtanen points out.

The uncertainty about the sufficiency of future pension benefits has also activated insurance companies, which are now competing fiercely in the sector of individual pension insurance schemes. These schemes, at least so far, are an attractive and popular alternative, thanks to their tax-deductible premiums. Now the Ministry of Social Affairs and Health is planning to change the taxation of individual pension insurance schemes, the intention being that individual pension insurance should lead to a reduction in the flat-rate basic benefit paid under the national pension scheme, as is the case with employment pension schemes. In addition, the working group appointed by the Ministry proposes that the retirement age granting the right to this tax deduction should be raised from 58 to 60 years.

The pension insurance companies and the Taxpayers' Association of Finland alike have rejected the amendments proposed by the working group as unreasonable, whereas Lindqvist-Virtanen is in favour of the proposal, seeing it as a step the right direction. "It seems unfair to me to support individual pension schemes at the expense of tax revenues. It is particularly problematic when corporate dividends are used as premiums in order to minimise statutory pension expenditure and to benefit from the low capital tax rate," she explains.

Lindqvist-Virtanen considers the idea of raising the retirement age according to the proposal particularly necessary in order to keep the situation under control in the future. Finns retire, on average, at 59 years of age.   This is unusually early by international standards. What is more, merely four percent of the population works until the statutory retirement age of 65. This situation will be unsustainable in the future, in view of the potential shortage of labour," Lindqvist-Virtanen claims, continuing that, in her opinion, the average retirement age should be at least 61 if the situation is to remain tenable in the future.

"Finns are still sticking to attitudes that prevailed in the 1970s, when the people who had experienced the hardships of the war wanted to retire as early as possible. That became the commonly accepted practice, which many continue to support, although life in general, and working conditions in particular, are better and people now live longer.  It is time to readopt the earlier ideal that everyone has the right and the obligation to work as long aspossible," she says.

Riitta Viitala, Deputy Head of the Department for Social and Health Services at the Ministry of Social Affairs and Health, agrees with Lindqvist-Virtanen. The comprehensive National Programme on Ageing Workers also aims at changing popular attitudes. "Implemented jointly with the Ministry of Education, this project supports measures whereby employers can motivate their employees to stay at work until retirement age. A common goal links this programme with two projects launched previously, Fitness at All Ages and Lifelong Learning," Viitala states.

The National Programme on Ageing Workers aims primarily at making corporate management aware of the value of ageing workers as a labour resource. "The massive unemployed experienced in the early 1990s, and the changes in working methods and conditions, all contributed to the view that ageing workers are aburden. All sorts of schemes were invented with a view to getting rid of ageing workers. In consequence, ageing workers' experience and skills were belittled. We cannot afford to act that way any longer, especially as the baby boom generation is approaching retirement age," she continues. Although that situation should still be some ten years off, Viitala believes that the efforts taken now to change attitudes are not premature. 

"Many companies are already aware of the situation, and concrete measures are being taken to bridge the gap in knowledge and skills between young and ageing workers. If these measures succeed on a wide front, the situation will be under control, despite the fact that changing an attitude is always a slow process," she concludes.

According to Lindqvist-Virtanen, a change in attitude can be achieved through the success of certain corporate model projects. "Training or an occupational health service in the long term can be the means for companies to improve the output of their ageing workers. Good results can often be proved with plain figures," she says.

Viitala emphasises that the programme does not aim solely at increasing the efficiency of the ageing workers. "People are different. They do not all have the same stamina. That is why flexible, individual solutions will still be necessary, whether various pension schemes or work-related arrangements. The latter alternative does, however, call for a new kind of employment culture; one that accepts the delegation of easier or less strenuous tasks to ageing workers without involving the attachment of any stigma."

*Source: An attitude survey carried out by Leijona, the life insurance company that is a subsidiary of Postipankki.

Translated by Sheryl Hinkkanen

Originally published in Socius 1-1998, the magazine of Ministry of Social Affairs and Health