Guest pen Improving the efficiency of the pension system would benefit companies and employees

The problems of the Finnish occupational pension system were identified as early as 2013, but nothing essential has been done to fix them.

Pension Security Center (ETK) commissioned an independent evaluation of the Finnish occupational pension scheme in 2013. The assessment made by Professor Keith Ambachtsheer concluded that the Finnish system is comprehensive and robust, but there is much room for improvement. An international comparison showed that the implementation costs of occupational pensions in Finland are clearly higher than in other comparison countries.

According to the report, a significant part of the cost difference comes from the fact that Finnish pension operators are small and the system is decentralized. The same statutory task is performed by many actors with their own management, information systems and marketing. The services are high quality but inefficiently produced.

The difference is partly explained by the fact that in Finland pension companies are also responsible for disability benefits. In addition, companies spend a considerable amount of money on customer acquisition. Attempts are being made to get companies to move from one pension company to another, although there are few differences in services. Each transition incurs a cost. According to the report, “competition” has not benefited workers or retirees.

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ETK: n since the report, nothing substantial has been done to improve the efficiency of the occupational pension system. The scheme is paid for by Finnish employees and companies, and the inefficient structure gnaws at both purchasing power and competitiveness. It would be time to discuss the merger of occupational pension companies and the easing of solvency rules that limit their risk-taking.

We currently pay 24.4 percent of our salary in pension contributions. It’s a big bill for businesses and employees. The employer will account for about 70 percent of pension contributions this year. The rest is paid by the employee.

Pension security is a key part of life security. For companies, high side costs are a competitiveness problem that weakens the demand for labor. That is why inefficiency cannot be afforded.

When as the population ages, pension contributions continue to rise. The ETC has estimated that they will account for more than 30% of wages in the 2060s. That would mean growing problems for companies, and this increase may not be enough either. Increasing life expectancy and falling birth rates are undermining the foundations of the employment pension system.

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Each stone should be turned over to increase efficiency and return on investment. The pension system must work as far as we can see.

In Finland In the private sector, there are four private occupational pension companies, the public pension insurer Keva, the agricultural entrepreneurs Mela, and a number of foundations and funds.

The annual operating costs of the system are around EUR 1 billion. Less than half of this goes to administration and more than half to investment management. Competition between companies is limited. Operations are regulated, services are similar, fees are the same and companies have joint and several liability.

For example, Canada has one fund and a freer investment policy than the Finnish model – and returns have more than doubled in recent years. If the system condenses, it is safer to relax the solvency rules.

Researchers at the Finnish Business Research Institute Tarmo Valkonen and Jukka Lassila calculated in their report last spring The economic impact of an aging population, that the level of income in Canada would mean a pension contribution of almost ten percentage points lower in Finland at the end of the century. The sustainability gap would decrease by 1.5 percentage points in 50 years.

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Employees would benefit from higher wages and pensions. The need for municipal and state tax increases and spending cuts would be reduced.

It would be irresponsible not to think about making the pension system more efficient. Merging companies and relaxing investment rules – within a reasonable period of time – would make the system more efficient, reduce upward pressure on pension contributions, improve the competitiveness of companies and increase incentives to work.

Every step that increases efficiency is important for securing future pensions.

Mikael Pentikäinen

The author is the CEO of Finnish Entrepreneurs.

Guest pens are the speeches of experts selected by the HS editorial board for publication. The opinions expressed in guest pens are the authors’ own views, not HS’s statements. Writing instructions: www.hs.fi/vieraskyna/.

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