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Finland not 'prepared' for ageing challenges

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  • Finland not 'prepared' for ageing challenges

FINLAND - Finland is still not "adequately prepared" to meet the challenges of an ageing population despite recent pension reforms, according to the Economic Council of Finland.

The secretariat of the Economic Council - which is chaired by the Prime Minister and aims to strengthen analytical discussion regarding economic policy decisions - was recently commissioned to produce an overall analysis on ageing policies in Finland.

Findings from the report revealed public finances are not on a "fully sustainable foundation", and also suggested some citizens are faced with "small pension security" and limited access to welfare services.

The report outlined a variety of measures to try and remedy the situation, including the importance of increasing the employment rate, enhancing public service provision and efficiency and promoting people's health and functional ability, which in turn will raise employment rates and lower health care expenses.

However, the Council admitted in the report that the recommendation to achieve a higher employment rate "calls for extending the average working life", which in turn requires a high general demand for labour and better incentives for employees to remain in work.

To meet this demand, the report's authors suggested employment should be developed to better cater to the needs of older workers "while making early retirement routes less attractive".

The Economic Council also recommended the so-called "unemployment path" should be restricted, because from the age of 59 to 65 unemployed individuals are currently able to earn extended earnings-related unemployment benefits and accrue old-age pension benefits but also have the option of taking pension benefits at 62 instead of 63.

Other recommendations put forward by the report include the reform of tax subsidies for retirement saving so they do not encourage early retirement, and minimum age limits for becoming eligible for the old age pension should also be raised over time.

The report noted weakening economic activity caused by the global financial crisis will lead to a fall in the employment rate, which combined with a continuing decline in the balance of public finances, will lead to a widening sustainability gap.

However, it also warned supporting employment requires a fiscal stimulus, which it claimed is further motivation for taking "an ambitious approach to the implementation of the recommended structural reforms related to issues such as the extension of the average working life".

The Economic Council has admitted while "decisions on the measures should be made as soon as possible, their full implementation is recommended only after the economy has started to pick up".

The latest figures from the Ministry of Finance, however, indicated Finland's GDP growth "slowed sharply in 2008" and will fall in 2009 following a decline in construction, a subdued housing market, the higher cost of finance and a fall in exports.

It is predicted GDP will fall by over 2% in 2009, and the government has warned households have become more cautious as the declines in construction, investment activities and exports will lead to higher unemployment.

Finland said the general budgetary position "was still rather strong" in 2008, but admitted that the sharp downturn in the economy combined with an expansionary budget "will rapidly erode the government surpluses".

Meanwhile the Finnish Centre for Pensions has confirmed the earnings-related pension index for 2009 has increased by 4.95% to 2286 - the largest adjustment since 1992 and more than double the 2.39% increase in 2008.

All earnings-related pensions in payment are bound in Finland to the earnings-related pension index - which is adjusted in January each year - and the adjustments are affected by changes to consumer prices, which has an 80% weighting, and salaries, which accounts for 20% of the changes.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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