In the next few years, the income of a Finnish wage earner may be hit by a nasty surcharge.
Shrinking age groups may lead to an increase in the pension contributions of Finnish wage earners in the next few years. According to the Pension Security Center’s estimate, a one percentage point increase could avoid larger increases in the future.
– According to established practice, half of the increase in pension contributions goes to the employee and half to the employer. With a percentage unit increase in the pension contribution, the wage earner’s contribution increases by half a percentage point, development manager of the Swedish Pensions Agency Heikki Tikanmäki tells.
For example, the increase would be 10 euros per month with a monthly income of 2,000 euros, 20 euros per month with a monthly income of 4,000 euros, 30 euros per month with a monthly income of 6,000 euros, and 40 euros per month with a monthly income of 8,000 euros. However, the real impact on the wage earner’s income could be two-fold.
– In the long term, it is likely that the employer’s fee increases will be seen as smaller salary increases, so in the long term, one can think that the employee will pay the entire fee increase in one way or another.
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Tikanmäki says that the increase should already be made “in the next few years” or there could be increases of 2–3 percentage points later.
– According to the current estimate, larger increases would be coming around the middle of the century, unless preparations are made for them in advance. The main reason for this timing is that the age groups coming into working age at that time are small, says Tikanmäki.
According to Tikanmäki, the need for a percentage point increase corresponds to the private sector’s fee increase pressure.
– In practice, payments from other systems are connected to private sector payments by various mechanisms. In particular, the employee’s contribution is the same for the state and municipalities as well.
According to Tikanmäki, the increase in pension contributions is a way to balance the financing of pensions in accordance with the current legislation.
– I don’t take a stand on whether it’s the best. Other options for strengthening funding could be strengthening the funding base, for example through work-related immigration, or the pursuit of higher investment returns through riskier investment of pension assets. All options have their pros and cons.
The employer and the employee each pay part of the occupational pension contribution. The employer collects the employee’s share of his salary and accounts the entire payment to the occupational pension institution.
This year, the employee contribution rate is 8.65 percent for those aged 53–62 and 7.15 percent for others.
In 2022, a total of almost 2.9 million people will increase their employment pension based on earnings and income. 2.7 million of them worked as wage earners.
Helsingin Sanomat previously reported on the estimates regarding the increase in pension contributions.
Prime minister Petteri Orpon (kok) government and labor market organizations are considering measures to reform pension security. The reform and proposals are prepared in two working groups in cooperation with central labor market organizations, the Ministry of Social Affairs and Health, and the Ministry of Finance.
The purpose is to prepare a proposal for new measures for the government by the end of next January, after which the proposal will be compiled into a government proposal.
The story was originally published in Talouselämä.
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