Finland’s largest pension fund, Keva, appears to be in favour of at least considering the government’s controversial pension reform idea of introducing a stabilisation mechanism for future occupational pension levels, according to a blog by one of its experts.

Mika Ylä-Outinen, head of the EU pensions team at the €62.2bn public sector occupational pension fund, said today that the debate had been going on for decades in Finland on whether it was fair that the younger, working generations bore all the systemic risk.

In the blog, Ylä-Outinen addressed the merits of introducing a rule-based stabilisation system to determine pension contributions in the longer term – a measure the government has insisted must form part of the pensions reform currently being hammered out by a working group.

“The [systemic] risk has materialised not only through changes in the pension laws, but also in the occupational pension contribution having doubled within 35 years,” he wrote.

At the same time, the employee contribution had risen from zero to the current level of 7.15-8.65% of salary, he said.

“Since even laws can be changed if necessary, the future pension level and retirement age have also been practically shrouded in darkness,” Ylä-Outinen said.

“Our defined benefit system has not been very ‘defined’ in the longer term,” he continued.

“For these reasons, I would not consider it a bad thing if the introduction of automatic stabilisers were now to be investigated,” he said.

Such stabilisers could be used to take care of the condition of the system in good time, and in a way in which everyone participated, wrote Ylä-Outinen.

TELA, the lobby group for all Finnish insurers providing statutory earnings-related pensions, including Keva, has voiced arguments against the idea of bringing in a rules-based stabiliser, saying in November that it could end up killing off the defined benefit principle.

In his blog, Ylä-Outinen gave examples of problems that had occurred where stabilisers were used in pension systems in other countries – Sweden and the Netherlands.

But he said Finland could learn from other countries and avoid such situations.

“It can also be thought that if the mechanism had been designed correctly, a positive risk would materialise under more favourable conditions than anticipated,” he noted.

“In this case, the mechanism would work by increasing the indexation of benefits from the normal level and/or reducing the pension payment,” said Ylä-Outinen.

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