Finnish pension providers’ alliance TELA has warned about the new government’s reform of occupational pensions, saying a key idea needs to be discussed quickly as it could end up killing off the defined-benefit principle.

In a commentary and explainer on the plans, Janne Pelkonen, manager, public advocacy at the association representing insurers providing statutory earnings-related pensions, said the distribution of risks in the financing of occupational pensions between employees, employers and pensioners may change.

Based on the programme of prime minister Petteri Orpo’s government, sworn in this June, the changes could mean that pensions already in payment – or those currently being accumulated – will be automatically cut if the funding turns into an imbalance in the future, he said.

“This may happen if the model of the ‘rules-based stabilisation system’ for the funding of occupational pensions, which is included in the government programme, is chosen that aims to freeze the current level of occupational pension payments,” Pelkonen said.

“In practice, it could even mean giving up the so-called benefit-based pension, if the pension payment is fully fixed.

“This would be a fundamental reform in the entire history of the occupational pension system. Therefore, it is important to start a discussion about the idea and value choices of the future stabiliser well in advance,” he said.

On 2 October, the government – which aims to bolster public finances to the tune of around €1bn a year with the reform – gave employers and trade unions just over a year to come up with a plan to revamp the earnings-related pension system, making various stipulations such as the inclusion of a long-term mechanism for stabilising contributions levels.

Pelkonen said the working group had been told to stabilise contributions, but precisely how that was to be done was still open.

“The parameters of the stabiliser – that is, what is stabilised and with what metrics – are the essential things here,” he said.

“Would the stabiliser, for example, be strictly linked to the income and expenditure equation of the occupational pension system or to broader factors affecting the Finnish economy?” he asked.

He said the effects of a possible stabiliser mechanism on fairness between generations and between the sexes, as well as on the implementation of occupational pensions, should be carefully investigated.

“So the schedule is tight. We are talking about large sums, effects and possibly even fundamental changes,” he said.

If the working group fails to agree a reform to strengthen public finances by January 2025, the government has said it will carry out the pension reform itself.

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