Pensions industry association TELA has roundly debunked the idea that Finland’s earnings-related pension system should be reformed to allow for self-invested accounts, with one of its directors giving multiple reasons why that would not work.

As part of the ongoing debate over pensions reform in Finland, some are advocating replacing the earnings-related pension system at least in part with an individual investment system in the vein of Sweden’s premium pension, TELA said.

The lobby group published extensive facts and figures on the Swedish system last week to add to the debate, and director Jari Sokka said in an opinion piece today: “The hopes of transferring the responsibility for investing earnings-related pension assets in whole or in part to individuals probably stem from the simple fact that there are hardly any other funds to invest in our poor country.”

There were too few wealthy families and individuals in Finland, he said, adding that when viewed by foreign investors, Finland was “a rather small side market”.

“However, the occupational pension system is far too valuable to be sacrificed to the efforts to promote mass capitalism,” Sokka added.

But any kind of private pension provision should definitely be supported, he said, adding that both insurance and investment companies offered such products.

Advocates of individual pension investment often had different motives, Sokka continued.

Young people were understandably worried about the future in an ageing society, which could be why trust in the common employment pension system was weak, he said, adding that social media in particular fuelled the attractive idea of financial independence and prosperity.

Jari Sokka at TELA

Jari Sokka at TELA

“The occupational pension system is far too valuable to be sacrificed to the efforts to promote mass capitalism”

Jari Sokka, TELA’s director

“Entrepreneurs, on the other hand, are perhaps inclined to believe in their own ability to invest, and therefore demand the opportunity to manage their own pension security,” he noted.

“The third group is made up of investment service providers, whose motive is purely business and therefore understandable,” Sokka said.

He questioned how it would even be possible to switch the pension system to one where employees were given the contributions to invest themselves, since in Finland – where the earnings-related pension system is only partly funded – that would leave pensions already in payment having to be financed directly from tax funds in the future, which would raise tax rates enormously.

Under the hypothetical system, he said it would have to be clear that people investing their own earnings-related pension funds would no longer be entitled to a national pension. “No one would want failed investments to be offset by society’s funds,” Sokka said.

“However, the biggest problem with the calculations of supporters of individual pension investment is the way investment returns assumptions are made – they are often extremely high,” the TELA director argued.

In Sweden, the premium pension system of individual accounts only makes up a minor proportion of the overall first-pillar state pension.

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