FINLAND - Reforms introduced in 2005 unnecessarily add to future pension costs and should be reconsidered, the Organisation for Economic Co-operation and Development (OECD) has claimed.
The Finnish government designed the reform package to help delay retirement age by up to three years through improved incentives to work longer, including higher accrual rates for older workers and the abolition of the cap on the maximum pension.
But in its latest economic survey of Finland, the OECD urged for many of the reform’s changes to be implemented more quickly in order to lower costs, rather than phasing them in gradually as planned.
Elements of the reform, in particular the accumulation of pension rights during non-work periods and the higher rate of accumulation from age 53, only partly compensated by a higher contribution rate by employees in this age group, were branded as costly by the OECD.
They would serve little economic purpose, it surmised.
Estimating that seven out of 10 new retirees currently retire early on some form of unemployment or disability benefit, the organisation warned that if existing pathways to early retirement remained in place they would blunt the increased incentives to work longer provided by the old-age pension reform.
Furthermore, the organisation warned that income growth could fall because over the next 25 years population ageing in Finland is set to be among the most rapid in the OECD.
The number of employed workers for each welfare benefit recipient, including those on unemployment benefit and all forms of pensions, could drop from 1.7 currently to about 1.0 by 2030, if current age-specific employment and benefit recipiency rates were maintained, it warned.
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