Age limit for part-time retirement will increase in 2011

The minimum age for part-time retirement will be rising from 58 to 60 as of the beginning of 2011, after which point pension will also no longer accrue from reduction in earnings. These changes in part-time retirement affect those who were born during or after 1953. In the future, the old-age pension of those part-time retirees born during and after 1953 will consist of the pension accumulated as of commencement of part-time retirement plus the pension accumulated from any subsequent part-time employment.

Decreased pension accrual for job alternation leave starting as of 2010

The pension accrued during job-alternation leave will decrease starting in 2010. The pension of an employee on job-alternation leave will accrue at the rate of 55% of the earnings serving as the basis for job-alternation compensation, in contrast to the current 75%.

Improvements in disability pension levels starting from the beginning of 2010

These improvements will be applied to pensions in which the disability begins during or after 2010.

New disability pensions will be calculated according to an increased accrual rate for projected pensionable service. The accrual rate of the pension component calculated on the basis of projected pensionable service (the period between the onset of disability and the reaching of retirement age) will increase from the current 1.4% to 1.6% (MEL special accrual rates) or from 1.3% to 1.5% (MEL general accrual rates).

In addition, the earnings applied to projected pensionable service will expand. Study that ends in completion of a degree or childcare leave for the purposes of caring for a child under the age of three will also be taken into consideration when calculating the pension component based on projected pensionable service.

Life expectancy coefficient and old-age pensions

In 2010, a life expectancy coefficient will be applied to old-age pensions. The impetus for the coefficient is the increase in pension expenditures resulting from increased life expectancy in Finland. The idea is that part of this increased life expectancy be used to extend the number of years in the workforce. The coefficient decreases monthly pension payments, but its effects can be mitigated by working longer.

The life expectancy coefficient affects the old-age pensions of those employees born during or after 1948. The coefficient will be defined separately for each age group in the year that group reaches 62 years of age. Your old-age pension will be multiplied by this defined life expectancy coefficient from the time you retire, regardless of the age at which you retire. If you retire before the age of 62, the coefficient defined for the year during which you retire will be used as the basis of calculation. If your old-age pension begins before 1 January 2010, the life expectancy coefficient will not be applied. Similarly, if you were born prior to 1 January 1948, the life expectancy coefficient will not be applied to your pension.

Life-expectancy coefficient will also have an effect on disability pensions starting in 2010

The idea behind the life expectancy coefficient is that part of the increased life expectancy of the general population be used to extend the number of years in the workforce; as a result, the level of one’s pension can be improved by working longer. But for those who start drawing disability pension at a young age, this is not possible. Thus, the life expectancy coefficient is applied only to that portion of accumulated pension that was earned before the recipient started drawing disability pension. The coefficient is not applied to that portion of the pension based on projected pensionable service (the period between onset of disability and reaching retirement age).

In addition, for those drawing disability pension, the coefficient is less severe than what it would be if calculated based on the year of recipient’s birth. For new disability pensions, the portion of pension already earned is multiplied by the coefficient established for those who have turned 62 during the year of the onset of disability. It is not, thus, the coefficient applied to the disabled person’s own age group. This means that the younger a working person becomes disabled, the smaller the effect of the coefficient on his or her pension. This disability pension is not adjusted according to a new life expectancy coefficient when the recipient converts to old-age pension.

In converting from disability pension or unemployment pension to old-age pension, the pension is not adjusted according to a life-expectancy coefficient.

One-time adjustment of disability pensions begins in 2010

The Employee Pension Act was modified at the beginning of 2005 so that the pensions of those who begin receiving disability pension before the age of 51 will receive, after the pension has been paid for five full calendar years, a one-time increase based on an age-dependent coefficient. The one-time adjustment is intended to ensure continuation of pension levels. Disability pensions will be adjusted for the first time at the beginning of 2010, at which time 5 years will have passed since the law was changed. The pension to be adjusted may, however, be of longer duration.

The amount of the adjustment will be based on the recipient’s age

The adjustment will only occur once, and it will be calculated according to the age of the pensioner at the time of the adjustment (in other words, his or her age on 1 January of the year the adjustment is applied). The adjustment can be received at the earliest at the age of 24, and it is not applied if disability pension begins after the year during which the recipient reaches the age of 50.

The full adjustment is 25% of the amount of the pension, and this will be received by 24- to 31-year-old disability pension recipients. The adjustment decreases by 1.0% per year of age, so a 55-year-old would receive a 1.0% increase. The one-time adjustment is calculated according to the amount of pension paid, and it increases the amount of the pension permanently.

Recipients need not apply for the adjustment. The Seafarer’s Pension Fund will notify recipients before the end of the year regarding the amount of the increase and the change in total pension amount.

One-time adjustment and survivors’ pensions

In addition to disability pension, it is also possible to receive a one-time adjustment to a survivors’ pension. If the deceased was drawing disability pension at the time of death, the one-time adjustment will be applied at the time when the deceased would have received the increase him- or herself, in other words, at the beginning of the year following that year during which the deceased’s disability pension or rehabilitation subsidy would have continued for five full, consecutive calendar years. The percentage of the adjustment will be calculated based on what the age of the deceased would have been on 1 January of the year the adjustment is applied.

If the deceased was not yet retired at the time of death, the one-time adjustment will be added to the survivors’ pension from the beginning of the year following the year during which the survivors’ pension has continued for five full calendar years. The amount of the adjustment depends on what the age of the deceased would have been as of 1 January of the year when the one-time adjustment is applied.

Recipients need not apply for the adjustment. The Seafarer’s Pension Fund will notify recipients before the end of the year as to the amount of the increase and the change in total pension amount.

Calculation of surviving spouse pensions will change as of the beginning of 2010

Calculation of surviving spouse pensions will change as of the beginning of 2010. That portion of a surviving spouse’s pension income that exceeds 596.00 euros/month (2009 levels) will reduce the survivors’ pension received by the surviving spouse. Previously the income limit was calculated according to the amount of the deceased’s pension.

Text: Michaela Björklund