International evaluation: Finnish pension system is simple and efficient

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The Finnish pension system efficiently alleviates poverty and provides a reasonable income for pensioners.
The strengths of the system are its principle of a one-stop-shop, simple structure, portability of pension entitlements and pension adequacy.
Nevertheless, the system will face a financing challenge that must be addressed in due time, by either raising pension contributions or strengthening the adjustment mechanisms.
The Finnish Centre for Pensions has published an international evaluation of the Finnish pension system. A link to the report is available at the end of this article.

The Finnish pension system received a positive review in a fresh international evaluation of pension systems that was commissioned by the Finnish Centre for Pensions. The Finnish pension system is robust and well-functioning and also promotes flexibility in the labour market.

“Although Finland has not completely alleviated poverty in retirement, fewer pensioners fall below the generally used poverty lines compared to the overall population. Internationally, pension replacement rates are also relatively high in Finland”, the report assesses.

According to the report, the projected real value of pensions and thus material living conditions increase in the future.

The report does not treat the Finnish system entirely without criticism: The financial viability of the system is challenged in the medium to long run, which is particular cause for concern. The report urges Finland to address the financing challenge in due time, because disregarding it increases the likelihood of the need for large changes in the future. This creates uncertainty and affects intergenerational income distribution.

“Unless we make changes now, there will be a pressing need to raise pension contributions in a few decades. The financing challenges are known and have also been subject to public dialogue. The Finnish sector is looking into different solutions to the problem as we speak”, says Finance Finland’s Director of Pensions Mikko Kuusela.