In addition to pensioners, the decision will hit municipalities by denting their tax revenue.All Finnish pensions, including earnings-related pensions, will only increase by 0.4 per cent in 2015, the Government decided in its framework session. For pensioners, the decision translates to a permanent decrease in their earnings-related pensions unless a compensatory increment in pension indices is adopted in the years to come.

The previous time earnings-related pension indices were cut in Finland was during the 1990s recession.

The Government has explained its decision by pointing out that with earners already consenting to wage moderation, everyone will hence be in the same boat by consenting to a marginal increase in income and a decline in purchasing power.

Regardless, the decision has stirred protests among both pensioner associations labour market organisations, which insist that they should be heard in all decisions on earnings-related pensions.

In effect, the decision means that the recipients of earnings-related pensions next year will forgo 150 million euros in index-linked increases in their income.

The cut in the indices will not, however, reduce Government expenditure, as the funds will be retained in employment pension funds and used to cover future pension liabilities.

Jukka Rantala, the managing director at the Finnish Centre for Pensions, estimates that with the current inflation and wage growth rates earnings-related pensions would have otherwise crept up by 1.5 per cent in 2015.

According to information obtained by Helsingin Sanomat, the main objective of the Government in its framework session was to seek savings in the state pension scheme. After recognising that it would be impossible to restrict the cuts to the scheme, the cuts were extended to also encompass private-sector pensions.

For the state, the decision will generate savings of roughly 30 million euros in basic pensions, 48 million euros in state pensions and 20 million euros in state subsidies for the pensions of farmers and entrepreneurs.

In addition to pensioners, the decision will hit municipalities. Minna Punakallio, an economist at the Association of Finnish Local and Regional Authorities, estimates that the decision will result in a decline of roughly 100 million euros in municipal tax revenue.

Teija Sutinen – HS
Aleksi Teivainen – HT
Photo: Sari Gustafsson / Lehtikuva