Golden years of Finland’s executive pensioners

Pensions of Finland's top executives are not limited by any rules or legislation

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By Tuomo Pietiläinen
     
      Pensioner Jukka Viinanen, 61, answers his mobile phone at Tienanmen Square in Beijing.
      He speaks somewhat quickly on the phone, since the former executive is worried about his phone bill, as he has to pay for a roaming fee for receiving a call while abroad.
      Viinanen promises to think about whether or not he wants to take part in a discussion on the pensions earned by top executives. He says that he will give an answer in a couple of days.
      Viinanen’s golden years began over a year ago, when he retired after a long career with the pharmaceutical company Orion, and the oil company Neste. In 1991 he found himself in the centre of the same kind of public controversy that Mikael Lilius faced more recently. At that time, Neste and the electric utility Imatran Voima merged to form Fortum, a move activated Viinanen’s pension contract.
     
Viinanen was entitled to a full pension - at that time worth EUR 8,333 a month - at the age of 51. However, the controversy that ensued made him decide to put his Neste pension on hold while pursuing a career with Orion.
      Now, ten years later, controversy has been sparked by the pension of Lilius, Viinanen’s successor. The pension is estimated at EUR 40,000 a month. Viinanen’s pension is apparently not reaching the same level, but it is quite generous, as he managed to get a clause in his pension agreement on a 66 per cent accrual rate, which is more than the 60 per cent of the pensionable salary, which is the current practice.
     
The pensions of Viinanen and Lilius are not the only super pensions in Finland. Helsingin Sanomat asked the Finnish Centre for Pensions for figures on how high a legally mandated work pension can be, and how big a group of people get the super pension.
      The highest pensions re earned by the 225 Finns, whose pension at the beginning of the year was EUR 10,000 or more a month. It is nearly ten times the average for Finnish pensioners. At the beginning of the year there were a total of 1,245,000 Finns who received occupational pension.
      At the very top were the 100 Finns, whose monthly pensionsrange from EUR 12,000 to EUR 39,000. This group is fairly male-dominated, as it includes only two women.
     
In nearly all European countries, pensions this high are trimmed back. According to the Centre for Pensions, only Finland, Estonia, the Czech Republic, and Portugal do not put caps on the highest pensions.
      For instance, in a wealthy country like Switzerland, the upper limit of legally mandated occupational pension is EUR 4,500 a month. In Germany it is between EUR 4,500 and 5,400.
      In Norway the ceiling is currently at EUR 7,800 a month, but in the new pension system that comes into effect in 2011, it will be reduced to about EUR 5,000. In Sweden, the cutoff point is already at about EUR 3,000.
     
Worries have been expressed in Finland as well on whether or not work-related pension funds are sufficient. The possibility of placing a cap on pensions has been put forward regularly here as well. According to supporters, a cap would save pension costs and raise the age at which people choose to retire.
      They feel that the common pension contribution, which are similar to taxes, should only guarantee a reasonable pension security, and that the big bosses should take care of the rest of it themselves. Nowadays pensions which are bought by companies cover a transitional period, from age 60 to 63, for instance, after which an independent pension covers the portion that comes on top of the occupational pension. Most of the large pensions of big bosses come from the occupational pension system, especially considering that the executives, and their widows, tend to be healthier than the population at large, and live about ten years longer than an ordinary worker.
     
Pension experts are nevertheless not very enthusiastic about the idea of a ceiling on pensions, saying that it would lead to greater inequality than before. Also, they say that the transparency of the pension system would suffer.
      Because it has no pension ceiling, Finland has not established any contractual supplementary pension systems linked with labour unions or sectors of industry, as is the case in countries, in which there is a cap on the payout of legally mandated pensions. The pension ceiling can be broken with contractual pensions, as is the case in Sweden, Denmark, and other countries as well.
      “Typically, inequality among pensioners is greater in these countries than in Finland, even though Finland’s legally mandated system gives the appearance of maintaining the differences”, says Hannu Uusitalo, director of the Finnish Centre for Pensions.
      According to Uusitalo, the coverage of the supplementary pensions of the countries with limits on occupational pensions is usually inadequate. In these countries it is the people with better incomes who have arranged for additional pensions.
     
Public debate over the fairness of the salaries of corporate executives has sparked great emotions for years, but debate over the excessive pensions is also difficult. It has not even begun, as news of Lilius’s EUR 40,000 monthly pension did not come out until very recently.
     
Jukka Viinanen has tought for a couple of days about whether or not he wants to say anything about the big pensions enjoyed by retired executives.
      On Wednesday morning in an answering machine message Viinanen says that he had the same discussion ten years ago, and he does not want to take part in today’s disputes at all. Viinanen voluntarily cut his pension to zero for ten years, and now he is managing with the EUR 23,000 a month in pension that he gets from his post at Orion.
     
Helsingin Sanomat / First published in print 11.4.2009


Previously in HS International Edition:
  Lilius steps aside, Kuula to take over as Fortum CEO (8.4.2009)

TUOMO PIETILÄINEN / Helsingin Sanomat
tuomo.pietilainen@hs.fi