Finns take a wrong turn
From January the mode of calculating the parliamentary pension in Finland will be changed. The pension will be calculated on the basis of the salary during the whole mandate of the member of parliment (MP); currently the pension is calculated on the basis of the salary of the last month's service as an MP. In this way the pension will better reflect the earnings of an MP throughout his or her parliamentary career.
This change has been welcomed by MPs. Jouni Backman, an MP from Finland’s Social Democratic Party, suggested that ”the problem with the current system is that MPs at the end of their careers try to get a better job to improve their pension”.
But while one problem may have been remedied, others remain, generating criticism from MPs, media and the public alike. Some argue that recent changes to the system, intended to lend it more credibility, have only compounded the problems.
There are 200 MPs in the Finnish parliament; they receive a monthly salary of e4,970 which rises to e5,340 after 12 years’ service.
MPs pay a contribution of 4.5% of their salary into the parliament’s pay-as-you-go pension scheme; the rest is funded by the state. They accrue pension rights at the rate of 4% of salary for each year of service and their full pension after 15 years service, slightly more slowly than in some other Nordic countries but much faster than many of their European counterparts. The full pension is 60%, after recent legislation reduced the percentage from 66%. This was to bring the public sector in line with the private sector. The pension is adjusted in line with the rate of inflation.
With 18 years’ parliamentary service behind him Backman, an MP since 1987, is not happy with the present qualifying period for a full pension. “After 15 years I get nothing extra. It is not fair.”
Until 1980 the qualifying period for the full pension was 20 years; the reduction was seen as a necessary measure to compensate for the salary which was considered low at the time, although this problem has since been remedied.
The principle of matching the reward to the length of service is a sound one, but is long service such a good thing in the first place? Heikki Paloheimo is professor of political science at the University of Tampere in Finland is sceptical. “MPs that have served two or three terms should not have incentives to remain in parliament for the rest of their life. This is a democratic argument: there should be enough rotation.” It is also for this reason that the recently introduced legislation has reduced the level of salary increment for length of service.
Backman is also unhappy with the fact that unlike other state employees, MPs were not compensated for the reduction in the full pension from 66% to 60%. But as other state employees have an accrual rate closer to that of the rest of the population, perhaps they should think more philosophically – of swings and roundabouts, for example.
Pension rights accruing from other employment limit the parliamentary pension if the total entitlements exceed e3,200. However, another new rule due to come into effect in January guarantees MPs at least 34 % of their parliamentary pension regardless of the level of other pension entitlements.
The retirement age is 65 years but it is not possible to draw the pension before a member ceases to be an MP.
The minimum length of service needed for the regular pension is one month; the average length of service is approximately nine years. And it is length of service that is another source of discontentment.
MPs are entitled to a so-called adjustment pension after seven years’ service as an MP. The primary aim of this is to provide financial assistance to MPs who are not re-elected and don’t immediately find employment, perhaps because they have been removed for too long from the professions they held prior to entering parliament. The accrual rate and maximum pension are the same as for the normal parliamentary pension. It supplements income from any employment that is obtained so that the total is at least 60% of the salary.
“The philosophy behind the partial pension was the need to ensure that recruitment to parliament was safe because the salary was not that high,” says Pertti Paasio, Backman’s colleague at the Finnish SDP.
Fair comment. But this has done nothing to enhance the already poor public image of Finnish MPs. In theory, the adjustment pension is not granted automatically; MPs must apply to the administration board who then decide on a case by case basis. But as Paasio explains, “the public criticises it because the benefits can be accessed too easily”.
A partial pension may be given even if an MP decides after four years not to stand at the next election. “You can enter parliament at 18 and retire at the age of 22 on a partial pension,” notes Paloheimo. This applies if they don’t get another job or if they just want to have an easy life. I can understand that many people think that there is no logic or it is unfair.”
Backman shares the sentiment. “If you want to know what is most unfair about the remuneration system, this is it. MPs can get this money without an obligation to take any kind of new work. The regulations are stupid: you can be a freelance journalist or you can write and sell a book, neither of which count as salaried work, and still draw the same pension. There are people who don't take the money and those that do – it depends on your morals.”
But Paloheimo concedes: “there have not been better ideas how pensions should be decided.” Interesting, that a matter of such concern has remained unresolved for so long.
The method of reviewing and deciding on levels of salary, past and present, has attracted the most criticism. Until 1999 salaries were pegged to the pay grade of a senior civil servant; it was MPs who decided which grade to use. This was seen as an abuse of their privilege. “It is an arrangement of the political elite when politicians can decide on their own salaries and what the arrangement should be for their own pensions,” argues Paloheimo. “MPs have been in an exceptional position compared with other people.”
Part of the problem of course is that ultimately such matters require
But the resulting problem was not as one might expect. The grade that was decided upon was considered too low – it was lower than that of mayors, for example. Paasio says: “In Finland MPs and even cabinet ministers have lower salaries than senior civil servants because of the principles of the market economy. The problem that the grade was fixed at too low a level was down to the artificial modesty of parliamentarians themselves. They are to blame.” He adds: “Technically it is simple to raise the grade but politically not.”
And this raises a point that we find in a number of other European countries. “Many MPs were complaining that with that level of salary we won’t be able to attract clever and well qualified experts from state administration, the municipalities and course from business as well,” says Backman.
So five years ago a decision was made to change the whole system. The link to the civil service salary grading was discarded in favour of an independent committee of three senior public figures, which would decide on the MPs’ salary.
One would have thought that this change would add credibility to the process. Not a bit of it. The change has created feelings of nostalgia for the past – in certain respects. Paloheimo says: “There has been much criticism among ordinary people and in the media that MPs salaries should be linked to the wage schedules of the high rank civil servants where salaries are negotiated via national collective agreements.”
He argues that it would have been a good idea to incorporate collective agreements when the decision making was externalised. “I can understand that there are many countries where it would not be rational to propose that the salary of MPs should be part of collective bargaining,” he says. “However, in 80% of Finnish workers are unionised and the bargaining system for has been very centralised for decades. I think that Finland would be one of those countries where this kind of organisation would work quite well.”
It is clear that it is credibility that is the problem. “The main problem is that the group of three is considered to be too close to parliament,” says Paloheimo. “Even if they have not been members of parliament they have been in high ranking position of civil service.”
Paasio continues: “It would be best to return to the system of being bound to public sector salaries. So we are talking about profoundly changing salaries and pension. Parliament must be involved with this.”
The word ‘circular’ comes to mind.