Finland faces tough choices
The Finnish government has been urged to usher in more politically difficult pension reform measures to make its finances sustainable.
The “political arithmetic” suggests there may be dangers in waiting too long, a new report warns. It comes as it appears that the initial response to a new flexible retirement regime introduced this year has not yet been significant.
“Additional pension reforms could be considered among the measures that are necessary to achieve fiscal sustainability,” the International Monetary Fund (IMF) said in a study on Finland.
“The latest pension reforms, while significant, are acknowledged to be insufficient by themselves to make the long-term fiscal position sustainable.”
Finland introduced a series of reforms at the start of this year which aimed to raise the effective retirement age by three years. The package included automatic adjustment and rising accrual rates. But the IMF said it does not go far enough.
It said: “Consideration could be given to additional measures that would further raise the effective retirement age.
“This would, however, be politically difficult at a time when the present reforms have yet to be fully phased in, and before their effects can be examined.
It said Finland’s rapid ageing “poses difficulties in political arithmetic which suggests that waiting too long to begin consideration of additional reforms may endanger the ability to garner necessary public support”.
The IMF said Finland should consider closing the so-called “unemployment pipeline”, tightening the conditions to receive a disability pension and accelerating the phasing out of the unemployment pension.
“The Finnish economy has performed admirably in recent years, but must confront earlier than any other country in the EU the pressures of population ageing,” the IMF said.
Meanwhile, the Finnish Centre for Pensions said that the
initial response to the flexible retirement has not yet been significant.
By mid January there had been about 3,000 applications for old-age pensions from private sector workers who had reached 63.
“These 3,000 new applications are a considerable increase, but still not that significant,” said Mikko Pellinen, head of department at the Finnish Centre for Pensions.