Savings | The government is considering cutting into pensions: this is what it would mean

Government is negotiating this week, among other things, on cutting pensions. The government is scheduled to agree next week on measures that will balance the public finances by around three billion euros already next year.

There is still controversy in the government about the role of pensions in the austerity package. It is known that Perussuomalaiset would seek a significant amount of savings from pensions, but the coalition opposes the idea. The government has so far left pensions out of the austerity measures.

It is not known how a possible reduction in pensions would be implemented. HS goes through three main options.

Option 1: Reducing increases in occupational pensions

If the government ends up seeking savings of hundreds of millions of euros from pensions, it can do so by interfering with the index increases of occupational pensions. Increases are made every year based on the price level and salary increase.

A good 34 billion euros were paid out last year. A year ago, the Ministry of Finance calculated that reducing the index increase by, for example, two percentage points would save public expenditures a net of 400 million euros. The reduction in tax revenues is taken into account in the calculation.

At the beginning of this year, occupational pensions were increased by 5.7 percent. The increases have been exceptionally large in two years due to the rapid rise in prices. The same large increases are not expected for next year.

If next year's index increase were reduced by, for example, two percentage points, the average gross pension of about 2,000 euros would increase by 40 euros less than it would otherwise. In practice, it would be a permanent cut of 40 euros to the monthly pension.

About occupational pensions only part is paid from the state budget. The lion's share is paid by private sector occupational pension institutions.

Nevertheless, all occupational pensions are public expenditures. Cutting the occupational pension index would therefore help the government, which aims to balance the public finances by necessarily balancing the EU's deficit procedure.

Prime minister Petteri Orpo (cook) however said on Sunday Above all, the government primarily examines the expenditures of the state's budget economy. So Orpo seemed to have a tight-lipped attitude towards cutting increases in occupational pensions.

Option 2: Tightening the taxation of occupational pensions

Occupational pensions are taxable income. If the government wanted money from occupational pensions specifically for the state coffers, it could increase their taxation.

The government could determine how much additional revenue it would like to collect through tax extortions and how it would like to implement the extortions: Would the extortions be targeted at all income categories? Or would the emphasis be on, for example, high-income pensioners?

The decision-makers have tried to keep the taxation of pensions and wages roughly as tight when the statutory social insurance contributions of wage earners are taken into account. This is evident from the calculation of the Norwegian Confederation of Taxpayers.

Tightening the taxation of pensions is also a politically timid option.

The “flat tax” on pension income for high-income pensioners is already unpopular, especially among coalition voters.

The same applies to the taxation of pensions as it does to the reduction of index increases: since such large sums are paid annually to occupational pensions, even relatively small tax increases could generate significant additional income for the public coffers.

Option 3: Reducing increases in national pensions

The state pays national pensions and guaranteed pensions to persons whose earnings-related pension accumulation has remained small.

The Treasury minister Riikka Purra (ps) has said that possible pension cuts would not apply to the smallest pensions. In all likelihood, the government will not affect the guaranteed pensions paid to those with the lowest incomes.

However, the government could, if it wished, include national pensions in the scope of the index cutter. So far, national pensions have also been protected from the index freeze on many other Kela benefits.

However, simply cutting back on increases in national pensions would not bring such a great benefit to the public economy, because national pensions are paid significantly less than occupational pensions.

Last year, 2.3 billion euros were paid in national pensions, so, for example, cutting the index increase by two percentage points would roughly bring a gross saving of 50 million euros.