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Tuesday, 07 December, 2021
Home NATIONALMore Finns concerned about depreciating pensions
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Tue, 21 Oct, 2014 12:00:24 AM
FTimes- Xinhua Report by Juhani Niinisto, Oct 21
"If this is permanent, what will be left of my buying power in 10 or 15 years?" asked Kerttu Saarela, a pensioner in her early 70s in Jyvaskyla, Central Finland.
The Nordic country is renowned for its sound pension system, where the purchasing power of pensioners has been partially protected with annual increases based on salaries and prices.
But the government is now defining the increase in 2015 only as 0.4 percent, while the true need could be 1.5 percent, according to analysts.
Complaining about rising heating bills and automobile insurance, Saarela was worried that her immunity against inflation may no longer exist.
Pensioners seem to be the first casualty as Finland, already grappling with an aging population, tries to adjust its social safety net in the context of current economic challenges.
Expecting negative gross domestic product (GDP) growth for the third consecutive year, Finnish ruling parties have suggested harsh cuts in expenditure.
Heated quarrels over decreased welfare investment caused the left alliance to walk out of the government in March this year.
The international reputation of the Finnish pension system is still good though. Last week, Finland came fourth in the international Melbourne Mercer Global Pension Index. It did well in integrity and transparency. Denmark came first, followed by Australia and the Netherlands.
A recent plan to raise the pension age in Finland from 63 to 65 was accepted by the majority of unions. It is supposed to ease the burden on the system as people live longer.
Last year, the average Finnish monthly pension was 1,550 euros (1,978 U.S. dollars) before tax. In Finland, pensions amount roughly to a half of the salary earned, while in countries such as Spain and Italy it can be 70 percent.
In terms of value and purchasing power, Finnish pensions are half way in the European scale, slightly worse than in Germany and Sweden.
Denmark and Luxembourg are the most generous. In Eastern Europe, pensions are much lower, but purchasing power is compensated through the lower cost of living.
Finnish citizens do not have much personal control over their pension plan. The Finnish public work pension system involved no personal accounts and employees were not required to make any payments until the 1990s. Until then, the burden lay with employers alone.
Nowadays, employers still have the main responsibility and have to pay 16 to 18 percent of the employees' salary to a pension company. The employees' payment is 5 to 7 percent of their salary.
Tax-funded basic pensions are still available, but only to those without a sufficient pension savings as an employee, entrepreneur or farmer.
The Finnish system has no upper limit for a monthly work pension. Talking to Xinhua, Kimmo Kontio, a specialist at the National Centre for Pensions, said the lack of an upper limit ensures that the system gets the commitment of the whole nation.
"Only 5 percent of the current pensions exceed 3,000 euros," he said.
Kontio underlined that the system has no foreseeable financial crisis. "If contributions would all stop today, payment could continue for seven years," he explained.
Pensioners' major concerns lie in expected value declining. Pensioners' organizations have protested against this risk, but it has had little impact.
Timo Kokko, chief executive of Elakkeensaajat, a left leaning pensioners' organization, told Xinhua that the over a million retirees have huge voting power, but the power of the organization is low.
"While 70 percent of employees belong to labor unions, only 24 percent of retirees belong to pensioners' organizations," he noted.
Kokko described the decision to weaken the protection against inflation as "incomprehensible" and said pensioners' organizations will demand that the loss be compensated later.
Kontio said pessimism is understandable against the backdrop of the current economic situation.
"If a pensioner lives in a rental accommodation in an urban area in southern Finland, half of the pension may be engulfed by housing, and any extra cost from illness could cause serious problems," he said.
However, most people in Finland own their houses or flats. In a new system, old people could sell their property, but remain resident there. However, recent surveys have indicated declining property values in many areas.
Some seniors living in Saarela's neighborhood have tried to sell their houses. But property prices are low, she said. 
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