NEWS ANALYSIS: Employee pension scheme could aid Finland through euro crisis

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By Tuomo Pietiläinen
     
      Finland has become a model student in the canine obedience-training academy of European monetary union.
      In that school, it is demanded that the state does not become overburdened with debts and that the public-sector finances are on a sound basis.
      The management of finances is on a sound basis when public income is in balance with public spending.
      The highest permissible deficit is three per cent of the gross domestic product (GDP).
      So far, Finland has met the requirements reasonably well.
      One of the reasons for this is that the Finnish employee pension scheme has produced an excess of income over public expenditure.
     
This surplus represents three percentage points of the GDP.
      In terms of money, it is almost EUR 5 billion.
      The advantage gained by the model student is based on the fact that in Finland the employee pensions are a part of the public social security system.
      The practice is not the same for example in The Netherlands, where the employee pension insurance contributions are transferred to private pension funds.
      The same applies to Sweden and Denmark.
     
The surplus is generated by employee pension insurance contributions paid by employers and employees, and principally by employee pension insurance companies’ returns on investments.
      Hopefully, such yields will also be gained in the future, even though the returns on investments have been rather thin in the past few years.
      Citizens should be grateful for their employee pension insurance, which will reduce the pressure to raise taxes at least in the short term.
      Officials drawing up budgets, in turn, should be grateful for the EU bureaucracy, which classifies the Finnish employee pension insurances under the public sector.
     
Has Finland really earned this kind of special treatment, or has it got into it by chance?
      The situation must be partly attributable to the fact that the officials in Brussels have not understood the dual role of the Finnish employee pension insurance: it provides statutory basic security, while at the same time it is part of the private labour market insurance.
     
This fact forms a paradox, as calling the employee pension insurance contributions public does not exactly thrill the employee pension insurance companies.
      According to them, the pension contributions of employees and entrepreneurs have been placed in the hands of private mutual insurance institutions and firmly recorded in the balance sheets of mutual pension insurance companies.
      The pension sector apparently believes that the funds are beyond the reach of the greedy hands of the civil servants and the politicians.
     
     
Helsingin Sanomat / First published in print 19.12.2011


Previously in HS International Edition:
  State Pension Fund ready to invest hundreds of millions into corporate bonds (9.1.2009)

See also:
  Government decides on gradual raising of minimum age for old-age pension to 65 (25.2.2009)

Links:
  Pension Insurance in Finland

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