A STUDY by the Finnish Centre of Pensions (ETK) has found that Finns transitioning from working life to retirement see their net income decrease on average to just below four-fifths, or 79 per cent, of its previous levels.
“The tax rate drops. That softens the impact of retiring,” explained Juha Rantala, an economist at ETK.
Those retiring from outside the labour force, by contrast, see their net income increase by an average of 10 per cent.
ETK on Monday highlighted that the net income ratio is no indication of the actual income level of an individuals; those retiring from outside the labour force typically continue to have a substantially lower income than those retiring from working life.
“If your [earned] income is low, you’ll be low-income person also in retirement,” summarised Rantala.
He reminded that the change in net income varies quite significantly based on certain factors, as some retiring from working life may see their net income dwindle by much less and others by much more than 21 per cent. The change is not set in stone also for those retiring from outside the labour force, as some may have accumulated considerable employment pension savings while others may have lived on social benefits for long periods of time.
The unemployed and other population groups outside the labour force account for roughly a quarter of all retirees. When examining retirees regardless of their pre-retirement labour market status, the average decline in net income is approximately 13 per cent.
ETK said the net income ratio has hardly changes since the early 2000s, even though the nature of change in income may have changed.
“What is new is an increase in freedom to choose. More flexible ways to transition to retirement have been introduced, giving people more freedom to choose when they retire and what the level of their pension will be,” told Rantala.
He expects the transition to retirement to prolong and not be as abrupt as usual in future.
Aleksi Teivainen – HT