FINLAND - Finland's population will age faster than any other EU member state over the next 20 years, but that will not lead to a pensions crisis thanks to longer careers and partial funding, the Ministry of Finance has claimed.
In a report on the economic effects of ageing populations by the Ministry of Finance, with input from the Finnish Centre for Pensions and the Social Insurance Institution of Finland, it was projected the ratio of pensioners to those employed would rise from the present 53% to 75% by 2030.
In other words, there are now nearly two people employed per pensioner, whereas by 2030 the ratio would drop to 1.3.
That ageing population will lead to a sharp increase in pension expenditure, which could rise about 3% in relation to GDP, the report stated.
In spite of this, the report predicted the adequacy of pensions was not likely to be a problem, as the level of pensions rose almost at par with wages due to the extension of working careers.
The report also claimed that partial funding had markedly strengthened the pension system’s sustainability, as the more the rate of return of pension fund assets surpasses the GDP growth rate, the greater the benefit of funding compared to a pure pay-as-you-go system.
“It is important to note that Finland has prepared for increased pension expenditure by partial funding, due to which pension contributions will rise in the future far slower than pension expenditure,” the report predicted.
“The funding of pensions has in practise no bearing on pension expenditure due to the defined-benefit nature of the Finnish pension system, in which pensions are determined by the length of the employment history and the level of wages.”
The report added that the aim of partial funding was to even out the pension contributions over time and thus distribute the costs of pensions fairly between generation.
By Damian Clarkson
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