benefit advisors1(2)
OCTOBER 3rd, 2014
EARNINGS-RELATED PENSION REFORM 2017
SUMMARY
Negotiations on the earnings-related pension reform were completed on 28th of September 2014. The new reform is based on the effects of the earlier reform from 2005. The main goal has been to create an economically and socially sustainable earnings-related pension system. The most important aspects are sufficient pension amounts, sustainable financing and prolonging of the working life.
Legislative proposals concerning the reform will given to the new Parliament after the parliamentary elections in 2015. The reform is meant to be in effect in 2017.
The pension reform will have an impact on many areas of the retirement system. The most essential changes includeraising the retirement age with a possibility of adjustment every five (5) years, standardizing the pension accrual percentages, replacing the part time pension system withpartial early old-ageretirement pension and introducing a years-of-service retirement system with a lower retirement age for those with a long working life.
GRADUAL RISE OF THE RETIREMENT AGE
The lower limit of the retirement age will be raised in stages during 2017-2025 with the goal of 65 years. The age limit will be raised three (3) months per every age group. For example the first group included in the reform, born in 1955 has the option of retiring at the age 63 years and three months. Correspondingly the next age group born in 1956 may retire at the age 63 years and six months. Those born in 1962 are the first the age group with the retirement age of 65 years, the target age of the reform.
The upper limit of the retirement age is five (5) years higher than the lower one, 70 years. The retirement age is tied to life expectancy to insure that the ratio of working life and retirement stays the same. The first possibility for adjustment is in 2027 with a maximum increase of three (3) months coming into effect in 2030. The adjustments will be conducted every five (5) years tripartite in the lead of the Ministry of Social Affairs and Health.
STANDARDISED PENSION ACCRUAL RATES
The regulations for pension accrual will be harmonized with those from before, the accrualsetting to 1.5 % of the annual wages. A pension will accrue from the age of 17 and also of work during retirement. To the end of year 2025 those between 53-62 years will accrue 1.7 % yearly with 1.5 % higher pension contribution. Postponing the retirement after reaching the retirement age of one’s own age group will earn an increase of 0.4 % every month.
benefit advisors2(2)
The pension accrual will be based on the whole pensionable salary from 2017. The employee pension contribution will no longer be deducted from the pensionable salary and therefore the contribution will also increase the pension amount.
LIFE EXPECTANCY COEFFICIENT
The life expectancy coefficient will remain in the retirement system. It is used to adjust the monthly pension amounts to mirror the changes of life expectancy. After the reform persons soon to retire will receive an estimate of the effects of the life expectancy coefficient in the pension. The estimate is to be given five (5) years before the lower limit retirement age of a person’s age group. Additional working time,after reaching the retirement age of one’s age group, reduces the effects of the life expectancy coefficient. Therefore a target retirement age is an estimate of the age when additional work time and the life expectancy coefficient amount the same and the pension is paid in full.
PARTIAL EARLY OLD-AGE RETIREMENT
The part-time pension system will be abolished and replaced with a partial early old-age retirement. From the year 2017 every person turning 61 can draw 25 % or 50 % of the accrued old age pension. However a pension drawn before the earliest eligibility will be reduced by 0,4 % each month. The life expectancy coefficient is also in effect reducing the pension amount.
YEARS-OF-SERVICE RETIREMENT
A strenuous or wearing working life may offer the possibility to retire after 38 working years at the age of 63 despite the retirement eligibility age of a person’s age group. The working life may have only minor disruptions and include at the most three (3) years of maternity-, paternity- or parental leave. There may not be more than one (1) year between years-of-service retirement and employment. The information concerning the working life isaccessed from the employment pension register and reliable information supplied by the employee.