Good correction, I missed calculating that funding component! Money for pension payments and the funding of future pensions comes from the state, TyEL contributions, and fund returns. However, the essential thing is the direction of the cash flow and the trend of the fund, regardless of where individual euros go, right?
Based on the Finnish Centre for Pensions (ETK) chart, the funds were increased last year by both the investment returns of 19.8 billion and the 3.2 billion you mentioned—totaling 23 billion, which is already as much as 81.5% of the total pension contributions collected (regardless of where each euro actually ended up). By the way, this is about 3.5 billion MORE than what was saved into the funds in the previous year, 2024.
Hopefully, by increasing the equity weight, we can now also get the returns to grow sustainably, at least a bit closer to those of our western neighbors.
And hopefully, the YEL system (pension self-employed) will also start to be built as a funded system, so that the state’s shares shown in the chart can be reduced at some point.
The percentages are the same for everyone, so every single person born in the late 1950s who receives a statutory earnings-related pension above the guarantee pension has paid for their pension.
True! Let’s remember, however, that the calculation example I quickly drafted does not take into account the pension contributions (EVK) paid from wages under the age of 41. The accrual was smaller back then, but on the other hand, there has been much more time for compound interest. And less than 80% of the age group is still around to draw a pension.
I would be happy to read if someone has the energy to calculate this for the whole of society. My goal was only to shoot down the incorrect claim by the “Juha of the industry” that supposedly no one has paid. In reality, all the children of the late 1950s and younger who have been in work have paid quite enough, but correcting the big mistake made before us will take a long time.
Not just “just about,” but well over. The calculation completely omitted the pension contributions and compound interest from the first 19 working years of the example person because I didn’t feel like looking up the old data. Furthermore, less than 80% of that age group is still around to collect a pension (or still working).
Thank you for understanding how misguided the broad “boomer” concept (1946–1964) is, especially in this discussion.
This is exactly what I have been saying all along! As the chart linked by Juha shows, the pension system was launched as a pyramid scheme. Corrective measures didn’t start until much later. There was some degree of funding earlier, but purposeful growth of the funds only began at the turn of the 1980s/90s. In other words, exactly when the generation now being criticized was in the workforce.
There is no doubt that different age groups are not being treated fairly now. It isn’t right. But this isn’t a monopoly of today’s youth; the increase in the retirement age mostly hit their parents, and the most recent changes are minor fine-tuning in comparison. Instead of looking for culprits, we should be looking for solutions. My own proposal is to grow the funds and improve the expected return.
JuhaR’s claim that none of the current retirees have paid enough to earn their pension is still simply wrong. This hit the soul of a professional who keeps their numbers in order—even as an emeritus—so hard that I am waiting with interest to see if there is the courage to admit they were wrong to baselessly blame someone who has fulfilled their own payment obligations.
I have mentioned this before as well. “Increasing risk” in pension funds is talked about in the media in a nasty way without ensuring every time that the reader understands what it entails. Increasing risk by raising equity weight means, by expectation, a higher average return with higher volatility. For a couple of hundred years now, stocks have been the best-performing asset class over the long term.
I see no other options than increasing the size of the funds and improving returns by cautiously raising the equity weight, taking liquidity into account. Of course, a public pension fund cannot operate with a constant 100% equity weight like someone receiving a public pension might run their own personal retirement portfolio.
The possibility of increasing equity weight is still needed, for example, due to anomalies like the last decade, when the good work of portfolio managers who generated good stock returns throughout the decade was diluted by buying zero-interest rate “guaranteed loss” bond speculations simply because of regulation.
Soviet Finland. Just go ahead and politely pay a quarter of your labor costs in pension contributions. The neighborhood drunk gets practically the same amount in net.
It’s hard to follow that long monologue, but to put it simply with some figures:
Those born in the 50s enjoyed an average of about 10% in occupational pension contributions for the first 30 years of their careers. Then, after the 90s, they paid 20% contributions with early retirement in their sights.
Here in the 2020s, those entering the workforce have put 25% into the occupational pension system right from the start. So, as the party paying more than double, one doesn’t really have the patience to listen to these “young people are just whining about pensions” and “we paid for everything ourselves” stories.
There are additional catches here if you consider someone who, for example, earns €2,500/month, has lived disciplined, saved, and acquired an owner-occupied home during their career. They won’t even get that housing allowance, unlike someone living in a rental. I don’t mean that owner-occupied housing should receive housing allowance, though.
If you are of the opinion that a certain age group has “paid for their own pensions,” could you please clarify what you mean by this? Specifically, was the calculation based on the pension contributions paid by that age group and the actualized rate of return of the pension system during the same period?
And even if that were the case, since everyone is forced to participate in the system, surely you understand that younger generations feel it is unfair that they receive a lower return on their contributions than your age group? In other words, saying they “have paid for their own pensions” doesn’t mean much?
This discussion highlights to me that current income transfer mechanisms disguised as pension systems should be abolished or minimized. The impoverished of all ages should be cared for (at a basic level of subsistence), but otherwise, individuals should be responsible for their own income and retirement.
Is that my opinion? Where have I said so? Citation?
In my view, I challenged Juha’s claim, which I will repeat at your request:
So, enough money has been withheld to meet the needs of a fully funded (rahastoiva) pension system, but due to historical burden, the full amount could not be funded. Fortunately, however, the funding ratio is on a clear upward trend, so the situation is improving all the time.
The calculation was from this millennium, the actual return percentages of the pension system from the last and current decade. If you have more accurate numbers, let’s calculate with those instead? We can also calculate the TyEL (EVK) contributions paid from the wages of those under 40 from the last millennium, if someone digs up the numbers?
The current return on pension funds is not a law of nature, but a result of the equity weight limits we have chosen ourselves. For example, in the last decade, Finnish pension companies took a heavy beating in return percentages compared to the Swedes, when good equity returns had to be diluted for administrative reasons with fixed-income speculations that were guaranteed to lose money.
I understand, of course. But this inequality is not the exclusive right of the young. It started already with us children of the 1950s. Our retirement age has risen more than that of the young, and our TyEL (EVK) contributions have risen from next to nothing to the current level, i.e., more than those of the young. This doesn’t make the position of the young any easier, except in the sense that you can see from your own parents that even though the situation is unfair, it is not unsustainable.
What I am getting at with this comparison is that if you are interested in finding someone to blame, criticize your grandparents and not your parents, who belong to the generation that started fixing the unfair pyramid scheme.
In that sense, “having paid a sufficient amount of money into their pensions” means a h*ll of a lot, considering that not enough money was withheld from the wages of those who retired in the 1980s or 90s to cover their pensions. Now the situation is much better, because the current withholding percentage is already clearly in surplus, as my calculation and the annually growing pension fund demonstrate.
I support the same principle as you, but as a service provided by society. And that is exactly where we are heading, as shown by the trend-like growth in the size of pension funds and the hopefully soon-to-be-realized option to cautiously increase equity weighting.
A benefit of a fully funded pension system is also that smaller TyEL (EVK) contributions are sufficient when each generation’s pension assets are funded during working years. At the same time, the irrelevant bickering about immigration and birth rates ends, as they have nothing to do with a fully funded pension system where each generation builds its own pension.
I am not against private pension funding and I do it myself to an extent at least one decade larger than average. But since not everyone is able to take care of themselves, instead of individual funding for everyone, I would build a fully funded pension system within which the Sequence of Returns differences of different years and the proportion of those who die before retirement can be averaged out, lowering the insurance premium.
If the pension is left in everyone’s own hands, the end result for the “spendthrifts” is that they have nothing left at 65, and then the crying starts that others must fund a tax-paid pension for someone who positioned themselves as a low-income retiree. Because of these types, I find it safer to force all employees to participate with a contribution that provides at least a reasonable pension.
If someone wants to build a pension cap by stopping TyEL (EVK) contributions once the cap pension is reached, then by all means, I’m not against it and would have taken that option myself if it had been allowed for me.
“Money has been withheld specifically for the needs of a fully funded pension system…” -style comments offer little comfort to the younger generations. And I ask again, how do you actually define this matter?
And the funding ratio is on a clear upward trend because pension contributions have risen to pathologically high levels. This certainly doesn’t improve the situation for anyone in Finland in the long run. I believe that this (reducing pension contributions, and naturally cutting pension liabilities accordingly) is the easiest and most essential thing to address if we want to do something about Finland’s catastrophic economic situation.
I’m not interested in searching for the culprits, because by looking at (1) pension contribution percentages, (2) the fairly clearly predictable demographic development, and (3) previous election results over the last 30 years or so, the matter becomes clear relatively easily. (The answer: a stupid/indifferent populace gets what it deserves.)
I fully support a completely different principle than you, which is that in the future, society should not interfere too much with the pension system.
I can’t do anything about the mental distress, but it is a fact that current earnings-related pension (TyEL) contributions + the returns on the funds exceed the amount of pensions paid out by about twenty billion annually. Thus, the size of the pension funds is gradually growing toward a fully funded pension system. That means the current contribution percentages are sufficient, as I already mentioned.
As the returns on pension funds grow, the contribution percentages can eventually be lowered. The difficult phase has lasted for more than half of my career, during which earnings-related pension contributions have had to be collected both to pay for old pensions and to grow the fund.
BTDT (Been there, done that). This is how it has been for decades, welcome to the adult world.
The generation that built the pension funds didn’t come up with any other way to pay the promised pensions and simultaneously grow the fund for future pensions. If you have a better solution, I am sure there is a use for it.
Yes, we can certainly act this way if it is a political decision. But that choice CANNOT be justified as fair and non-discriminatory. Your proposal means that the 1950s–1960s age groups will be robbed first by their parents’ pension system and then by their children’s pension system.
First, high earnings-related pension contributions are paid—the very ones you are talking about—and then, in return, they don’t even receive a pension. Is this your idea of fair play?
If everyone is responsible for their own pension, who pays the pensions of those who did not understand or know how to save for their own retirement?
I don’t recall exactly where the break-even point was—where a specific age group has actually paid for their own pensions. In the big picture, it’s fairly irrelevant whether the exact year is 1959 or 1956 or whatever. In any case, the youth’s assessment of the situation is 100% correct: the most crushing amount of cash relative to received benefits is being taken specifically from today’s young people.
Personally and selfishly, I am concerned that as I’m getting older and my pension starts hitting my account in a few years, the camel’s—or rather the payer’s—back might break right at that moment. You see, the baby boomers were not only numerous but also exceptionally active politically, so the current pension system has largely been built on their terms. Consequently, sufficient corrections weren’t made in time. But the baby boomers are gradually passing away. Today’s youth are much more politically active than my generation. My children’s generation might not necessarily have the enthusiasm to maintain the pension system in its current form. We might see some quite radical reforms once power shifts to the younger generations.
And whether there’s a major overhaul or minor adjustment, I wonder if they’ll be able to create a system that is fair to their own children as well. Personally, I would find it desirable for the state to mandate participation in a pension system—because if it doesn’t, there will be too many free-riders who, at the ripe age of 70, suddenly and unexpectedly realize they haven’t saved anything, yet expect others to take care of them. However, individuals should have more direct influence over the level of funding and where it is invested. Something like a mandatory minimum level, after which you could decide whether to put the money into stocks or funds held in a personal pension account.
That’s how I wish the system had been for my generation too. Well, it wasn’t. That’s why I’ve been investing in stocks for that uncertain future. Perhaps something has been done, if not perfectly right, then at least not wrong. Partly thanks to this discussion forum for those interested in the subject. Perhaps, maybe.
No, they didn’t. Not a single one of your claims is true, so let’s look at the facts:
As you can see from the graph you linked, the 10% mark was exceeded while I was in high school in the late 1970s. Therefore, more than 10% in TyEL (earnings-related pension) contributions has been paid from my salary throughout my entire career. Initially, however, no pension accrued from it, because pension accrual only started at the age of 23.
The period of rapid growth was not in the late 1990s but in the early part of the decade, immediately after the short-lived recession stimulus discount following the turn of the decade. I reached this point on the curve after 10, not 30, years of work.
Those children of the 1950s who experienced the sharp rise in TyEL contributions in the early 1990s after a 30-year career must have started their careers at the age of 13 or 14 at the latest. I am one of the last children of the 50s, so for someone my age, that feat would have required entering the workforce at age 4.
I have not sailed along with “about 10%” TyEL contributions for 30 years of my career. On the contrary, I have paid more than 20% in TyEL contributions for almost exactly 30 years. The last boomers will have participated in these “communal efforts” (talkoot) for 35 years—meaning almost their entire working lives.
How much are you allowed to exaggerate before it crosses into lying?
I can’t help with your patience, but if my TyEL contributions from the 2000s onwards alone—i.e., starting only from age 41—had been invested with the average return of pension insurance companies, they would pay out a significantly larger pension than I receive now, without even touching the capital.
I am not telling you this to complain, but to enlighten.
The break-even point is indeed not essential, and I don’t know where the break-even occurs myself, as I only calculated my own situation for those of us the same age as Barbie and Asterix (1959). I addressed this because of Juha’s incorrect accusation.
The essential thing is that the system is sustainable because, at the current return and contribution levels, it is in surplus. Rumors about the collapse of the pension system can be removed from the discussion.
The unfair distribution of contributions versus the percentage of return received between different age cohorts is, however, a reality.
True. But what is the best way to fix it? In financing long-term needs, pre-funding assets works, where compound interest reduces the need for money to be paid over the years. A long horizon also enables the utilization of equity returns, as long as liquidity is maintained.
When a system capable of paying over half of pensions with fund returns has been built in 35 years, would today’s youth dare to admit they are so incompetent that they cannot complete a fully funded system over the next 35 years? After that, pension insurance contributions could be stopped altogether.
I also support the freedom to determine more of one’s own pension. Once the fund size and returns are large enough, I see two options. Either implement a pension cap via a contribution cap, where those who reach it are exempt from pension insurance (EVK) contributions.
Ending pension contributions might manipulate the labor market in favor of older people, so a cleaner option would be to target the contribution reduction at all age cohorts while simultaneously lowering pension accrual in proportion to the contributions. This way, everyone would have more money left to invest in, for example, their own pension fund.
