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Finland “clouded” by ageing – report

FINLAND – Finland’s long-term outlook is not only “clouded” by the imminent ageing of the population – but the pension reform set to come in next year is insufficient, says a new report.

“The longer term outlook is clouded by imminent ageing of the population, and rigidities in institutions and attitudes that impede adaptation to change,” the report from the International Monetary Fund states.

“With the adverse effects of ageing impacting Finland earlier than any other country in EU, the window for an effective policy response will close rapidly.

“As aging accelerates over the coming decade, the electoral arithmetic will begin to shift soon against the constituency for reforms, with voters 50 years or older set to form a majority by 2010.

“While Finland enjoys the advantage of a favorable initial position, with the public sector holding sizeable net assets and a significant pension reform in train, much remains to be done to put the Finnish welfare state on a sustainable long-term path.

“The authorities should therefore aim at a consensus behind a holistic approach to structural reforms that could initiate a virtuous circle of higher employment and growth and stronger public finances.”

It says the pension reform that will be phased in beginning next year is an important step towards ensuring fiscal sustainability, but is, by itself, insufficient.

It said: “The reform - with commendable features such as an automatic adjustment for rising life expectancy, link of benefits to life-time earnings, and sharply rising accrual rates after age 63 - is expected to raise the effective retirement age by almost two years.

“While the reform goes some way towards promoting higher labor participation by limiting the avenues for leaving the labor market early, important pathways to early exit from the labor force remain.”

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