It has been reported that Finland plans to introduce a policy that would allow long-term unemployed people over the age of 60 the option to retire early at an estimated cost to the Finnish Government of €20-30 million, a policy which runs counter to both its recent retirement reform agenda and OECD advice on how it can mitigate the effects of an ageing population. The Minister of Justice and Minister of Labour, Jari Lindström, who is proposing the reform, has argued “this would be a just measure" and that resources currently spent on promoting employment for older people could be redirected to other groups.
The OECD has advocated Finland close off its early exit and retirement options, in particular the option for certain birth cohorts to remain on unemployment benefits until early pension age (the ‘unemployment tunnel’), whilst strengthening its active labour market policies, in particular those targeted at long-term unemployed people. Indeed, Finland had been moving towards closing and restricting access to its many early retirement and exit pathways – pathways which had contributed to low employment rates for the over-50s in the 1990s – largely by limiting access to people born before a particular cut-off year. In addition, the pension system was reformed to change the accrual rates for the earnings-related pension to incentivise working later in life by linking them to age (1.5% per annum of pensionable earnings at ages 18-52, 1.9% at ages 53-62 and 4.5% at ages 63-67).
However, despite the official pension age being 65, the average effective retirement age in 2014 for men was 61.9 and for women 62.4, though this represents an increase from around 60 for both genders in 2000. With progress still to be made and against both a national and EU-wide wave of anti-early exit reform, this new policy to allow early retirement at 60 could be viewed as unexpected, but perhaps not within the Finnish context. In 2009, the Finnish government established two tripartite working groups comprising of the Finnish Government, unions and social partners to address issues related to later life work and retirement. The Rantala group’s remit was to work towards raising the retirement age but they were unable to reach a consensus- whilst employers’ unions wanted to abolish the unemployment tunnel, trade unions were strongly against this proposal. Finland has extremely high union membership levels – around 75% of the population are in a union – which could perhaps partially provide insight into the origins of this proposed reform. Yet Ebbinghaus notes, although early exit and retirement act as “a panacea for certain pervasive labor practices, including shedding workers to restructure in response to the changing economy, buying worker consent to downsizing by offering ‘soft landings’ and the efforts of government and unions to reduce labour supply” (Ebbinghaus, 2001: 76), it also creates non-wage labour costs which reduce competitiveness, increase social security expenditure and ultimately early exit incrementally becomes even earlier.
In addition, though it has been described as a ‘just’ or fair move (and historically Finland has emphasised the ‘duty’ to exit and make way for younger jobseekers, Gould and Saurama, 2004), it means that long-term unemployed people who retire at age 60 will miss out on the opportunity to increase their pension incomes and presumably will also be subject to a reduction to their final pension amount like other recipients of the Early National Old Age Pension. Currently the Early National Old Age Pension is available for those over 63 and reduces the pension amount by 0.4% for each month the person is below the age of 65 (a maximum of 9.6%). Similar reductions apply to the Earnings-Related Pension for people who take advantage of the provision for early exit at age 62: their pension is reduced by 0.6% per month until they turn 63 (a maximum of 7.2%). When this is added to the gains they could potentially make by returning to the labour market and remaining there until the age of 67 (4.5% per year from the age of 63-7), those exiting early would experience a significant reduction to their final pension amount. As has been highlighted by Barr (2013), there is currently a ‘spike’ in exit in Finland at the age of 63, which with increased longevity raises questions about both the adequacy and sustainability of pensions; a policy which shifts early exit to earlier in the lifecourse could make these questions even more pressing.
References
- Barr, N. (2013). The pension system in Finland: Adequacy, sustainability and system design. Centre for Pension, Finland.
- Ebbinghaus, B. (2001). When Labour and Capital Collude: The Political Economy of Early Retirement in Europe, Japan and the USA in Ebbinghaus, B and Manow, P. (eds.). (2001). Comparing Welfare Capitalism: Social Policy in Europe, Japan and the USA, London: Routledge.
- Gould, R and Saurama, L (2004). From Early Exit Culture to the Policy of Active Ageing: The Case of Finland in Maltby, T; De Vroom, B; Mirabile, M; and Øverbye, E. (eds.) Ageing and Transitions into Retirement: A Comparative Analysis of European Welfare States, Aldershot: Ashgate.
About the Author:
Dr Kate Hamblin is a Senior Research Fellow at the Oxford Institute of Population Ageing. Kate is currently working on a follow-on project examining self-employment for older workers as well as a further collaboration with CIRCLE on a piece of research commissioned by SENSE (the deaf-blind charity) to explore telecare use by individuals with dual-sensory impairment. She is also engaged in a John Fell Fund project exploring the outcomes of the Museum of Oxford’s reminiscence programme and a study examining the work and retirement aspirations of older self-employed people.
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