Employment pension accrual

Personal finances
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I tried to find a suitable thread for information exchange about occupational pension accrual and related matters, but I didn’t find one.

I myself belong to an age group from whom pension accruals from work done before the age of 24 have been removed, and otherwise I belong to a generation who, as a whole, feed more funds into this system than they statistically get back. This, of course, depends entirely on how long one stays alive.

Since we are on an investment forum, the size of the pension and its share of one’s livelihood in later years is quite essential.

I myself am quite an Excel freak and have thoroughly investigated how that annual accrual is calculated and what variables affect it.

I will focus on the private sector occupational pension, because the public sector systems are a bit different and I don’t know anything about them.

If you don’t know your own pension company, you can find it here: Työeläkeote - Työeläke.fi
By selecting the link “Siirry työeläkelaitoksesi palveluun” (Go to your pension provider’s service) you can access strong authentication, which will direct you to your own pension company. On your own pages, you will need to authenticate again.

My workplace’s pension insurance company is Ilmarinen, and their pages have recently been updated somewhat. The accrual is now visible as a monthly sum for the current year.

Next week I will continue by explaining this calculation, how the accrual is calculated and how it is formed.

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Fortum - Puhtaan energiasiirtymän vauhdittaja
Inderesin kahvihuone (Osa 6)
Politiikkanurkkaus (Osa 1)
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Yes, there is one fact about this pension system, and that is that the younger you are, the more you lose in the pension lottery. Also remember that even though you’ve been robbed of the work you did under the age of 24, your pension accrual rate used to be better than it is now.

Edit: Then there are all the super accruals etc., depending on age.

The biggest winners are already retired, and the trend is generally downwards.

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Fortunately, as an entrepreneur, I have the power to opt out of accumulating an occupational pension and instead take the statutorily mandated minimum from society when I retire.

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I agree, but the purpose is to now open up the calculation, not to say that the baby boomers have been and still are leeching off younger generations.

For almost everyone working full-time, their pension will be much larger than investment returns, so it’s essential to understand how it accrues as a function of earned income.

The more taxable income you earn during your working life, the more pension you get :grinning:

Entrepreneurs’ YEL (entrepreneurs’ pension insurance) is a different matter. So I’m focusing on TyEL (employees’ pension insurance). Feel free to write about entrepreneurs’ pensions too.

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If you expect to get 0 euros in earnings-related pension, you will hardly be disappointed, at least not badly. This is how much I count on it in Excel.

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Only negative comments so far. This is probably due to low income or young age :smiley:

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On disbelief in the current pension system.
At 34, I would currently be able to retire at 67. Since the system is not on a sustainable footing, this number will surely be raised many times over. Since I don’t even know when I’ll get to enjoy my occupational pension, let alone its final sum, why would I base any of my plans on it?

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@Pappa_Tunturi if you haven’t had a chance to look into it yet, also read about the partial early retirement pension. You can start receiving it at the lowest confirmed old-age pension age, which is determined by the year of birth. You can receive 25% or 50% of your accrued pension, but it simultaneously reduces the remaining accrued pension amount by 0.4% per month. In this calculation, it is important to assess the combined tax effect of work and pension earnings.

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To estimate your pension accrual for the current year, you need the following information:

-accrual at the end of 2019, which you can see on your pension company’s website (PA2019)
-estimated gross earnings for 2020 (GE2020)
-if you are under 53 years old, your accrual percentage is 1.5%, and if over, it is 1.7% (AP%)
-life expectancy coefficient according to your year of birth: https://www.tyoelakelakipalvelu.fi/telp-publishing/vepa/folder1.faces?\u0026document_id=316319\u0026navigation_history=200016\u0026folder_id=200016
(LEC)
-the index adjustment is determined according to the consumer and price index for September, published by Statistics Finland in October, such that inflation has a weighting of 20% and the earnings level 80% (IA). According to the latest statistics, I would estimate the IA to be 1.2% this year.

Accrual at the end of 2020 → ((PA2019 + ((GE2020 * AP%)/12)) * ((100 + IA)/100)) * LEC

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The wage coefficient used in indexing can be found conveniently here:

http://www.saadospalvelu.fi/fi/indeksi/indeksiluvut_eri_vuosina

The pension index, which is also there, is then used for pensions being paid.

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The life expectancy coefficient is an interesting variable. It is based on Statistics Finland’s mortality statistics.

In my opinion, the forecasts for increasing life expectancy are a bit too optimistic. And this is precisely the number that determines the retirement age for those born after 1965.

The entire pension system is just cold mathematics. Unfortunately, it does not take into account that the brain and human physique do not keep up with the increase in life expectancy.

In the pension system, a woman’s euro is 80 cents of a man’s due to life expectancy. For equality, the life expectancy coefficient should be separate for men and women.

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Yes, but this calculation is for those who are working and not retired. So, the pension is still accumulating at an astonishing rate.

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Here, the correct index to use is the earnings-related pension index.

Edit: “The earnings-related pension index is used in calculating future earnings-related pensions. It adjusts annual earnings to the level of the year in which the pension begins.”

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At what age do you find it useful to start calculating pension accrual?

The amount of future social security is a political decision, and if you are, for example, 50 years old, it’s quite miserable to plan for the future at the mercy of others. Many on this forum invest precisely because they want to cope even if pensions were decided to be cut by, for example, a third in the future.

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OVE, or partially early retirement, was meant to be discussed later. It has been calculated and is a good option, unless the greens and leftists remove it. It has already been in use for a couple of years, and we cannot trust our erratic financial policy in anything.

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The average investment assets for Finns are around €10k. That won’t get you very far.

If you’re planning investments for a few decades, why not your pension? The more you earn, the more pension you get.

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What I mean is that the starting point is that most people are already trying to maximize their earned income. The upper middle class might downshift a bit, but that’s only a small part of the population. So, basically, the pension will be whatever sum it is when you retire, and you can’t know it in advance, because its level can be changed by a political decision at any time. In addition, you might have to retire on a disability pension or become unemployed before the actual retirement age.

So I don’t understand what the benefit is of calculating a figure whose size a normal working person can’t really influence and whose level can’t be known in advance. Investment assets are your own money and under your own control, so you can significantly influence them and, if necessary, even save more from your salary and grow them faster.

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Why would someone stare at Nokia’s stock price incessantly from morning till night? Or calculate and monitor their stock market wealth.

It’s good to remember that a pension is also an investment asset. If you receive a pension of 2000 €/month (sometime in the future), it would require approximately half a million in investment assets for the dividends to be the same amount.

And I admit, of course, that these things become more interesting the closer you are to retirement age or OVE (Optional Voluntary Early Retirement).

Best regards, 57-year-old young person :grinning:

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Well, a pension is a social security benefit that the state grants you. Since you have no decision-making power over this benefit, it is entirely comparable to, for example, the housing allowance for pensioners, which is granted to pensioners under certain conditions and is deposited into their account in the same way. By the way, the housing allowance for pensioners should be taken into account in these pension calculations. It makes up a significant sum.

The only sure way to secure your income level as an older person is to accumulate enough diversified, productive assets by retirement age.

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Of course, I’ve taken care of this. I have a debt-free detached house in Helsinki and a 200k€ portfolio.

I’m in a situation where I’m calculating when I dare to jump off the hamster wheel. It requires OVE as a basis, if it still exists in four years.

And my own pension accumulation is already at a very good level.

FIRE will not be realized for the latter part for me. Early retirement :smiley: has already passed.

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