A major increase in immigration to Finland, or an equivalent fall in emigration, would ease pressure on Finland’s squeezed pension system, new research from the Finnish Centre for Pensions shows.
The organisation – which is the central body of Finland’s statutory earnings-related pension scheme – said a population influx would help counteract the negative impact that dwindling birth rates are predicted to have on contribution rates for Finnish pension savers within the earning-related system in the years to come.
Jaakko Kiander, the centre’s director in charge of research, statistics and planning, said: “A net immigration that is higher than it is today could compensate for the upward pressure on pension contributions caused by declining birth rates.
“The magnitude of the effect depends on the employment outcome of the immigrants,” he added.
Back in March, the Finnish Centre for Pensions issued a warning about falling birth rates, saying the falling dependency ratio could push contributions up by around 30% after the 2050s.
According to the centre’s baseline projection, which follows the 2018 population projection from Statistics Finland, contribution rates under the Employees’ Pensions Act, TyEL, are set to rise to more than 30% in the latter half of this century – up from the current level of 24-25%.
However, the centre warned that reduced immigration would weaken Finland’s pension finances, saying that, if the number of people coming to the country were to fall by 5,000 per year, contribution rates would then have to rise as early as the 2030s.
The new study splits immigrants into earnings brackets based on their countries of origin to illustrate the effects that different types of immigration would have on pensions. This analysis revealed that an increase in newcomers from the high or medium earnings group could reduce pension contribution rates by around one percentage point by the mid-2040s.
On the other hand, an increase in the low employment outcome group would reduce contribution rates less, and until the end of the 2060s.
But looking even further ahead, the research showed that the different scenarios drew closer to each other, with the gaps in employment rates between the source countries disappearing.
Tuija Nopola, mathematician at the Finnish Centre for Pensions, said: “Immigrants in the low employment outcome group are more fertile than the immigrants of the other groups. Their children are expected to have a better employment outcome than their parents, which will increase the number of employed and even out the gaps in the scenarios in the long run.”