New conditions and the economic situation turn the course towards pension in 1967

MEL's conditions were improved in 1967 by removing the so-called three-year break that had weakened accrual, which "eased departure for pension and raised the pension level of old seafarers". Until then, "the general precondition for receiving a pension other than a paid-up pension is fairly continuous service in a seaman's occupation", as could be assessed already in 1956. The jump in the number of pensions coincided with a simultaneous recession in shipping and in Finland's economy. The difficult employment situation, together with the closure of many shipping companies, led to "several age groups transferring to pension at a rapid pace". In addition, the disability pensions of persons younger than before, on average already under 50 years old, increased expenditure.[3]

The number of pension applications (345) doubled during 1967 and the average age of departure for pension declined. Vessel work was left at the prescribed age, and people no longer soldiered on to improve their livelihood and their own pension, as in the early years. The amount of pensions was also raised by the lengthening of their duration, which, besides the earlier retirement, was affected by people living ever older. The annual mortality of the fund's old-age pension recipients fell to one fifth from the early 1960s to the end of the 1970s. Over the same period, the number of insured remained at about 15,000. Relatively, the number of pensioners remained moderate, under 10 per cent of the sector's jobs.

The economic-policy situation prompted discussion from one meeting to the next in MEK's board, where it was stated in March 1968 that "as regards the social-security solutions connected to the Liinamaa agreement,[4] seamen already have at least as good benefits as other employees are expected to receive, so amending the Seafarers' Pensions Act is hardly necessary". The lead in seafarers' security that emanates from the statement is illustrated by the layout of the average size of the monthly pension in 1968 from the various systems.[5]

From the beginning of 1971, the level of the pension was determined by total income instead of the former basic wage. The social package of the third incomes policy agreement (the UKK agreement), concluded the same year, included a child increment to pensions, the MEL coordination limit then being 66 per cent. Pension benefits were consolidated, and with the annual index increases of on average 10 per cent, a pension granted in 1967, for example, was already by 1972 a good half larger.

Liinamaa's 1968 stabilisation agreement also removed the index clause from the fund's loans, with which the pension increases had until then been able to be financed. When the age of departure for pension fell, the number of the fund's pension recipients doubled in a couple of years, 1966–68, already exceeding the thousand mark. In 1971 there were 1,770 pension recipients, a third of them survivors' pension recipients. By then the number of pensioners had tripled, but the sum of money needed for payment had more than sextupled.[6]

The need to raise the insurance contribution grows

After its apprenticeship years, the seafarers' pension began to function in the way originally intended for it; it was only the costs that came as a surprise. The central question became how this good and year-by-year improving level of benefits was to be financed. As the number of pension recipients and the expenditure grew, the fund had to devise ways to adjust its finances, even though the industry's profitability was again running in favourable winds in the early 1970s.

At the end of the decade, in 1969, it was reported from the fund that "the rapid growth of pension expenditure has caused the growth of investments to slow relatively, and 90% of the contribution income was used for pensions and benefits". Three years earlier, pension expenditure had taken only a third of the contributions, so the change occurred suddenly. The transition in 1971 from the basic wage to the total wage doubled the contribution income on the one hand, but did not balance the expenditure.

The actuarial studies, previously made separately, became regular, and from 1971 onwards it was found necessary to "move to continuous research into the fund's state". The calculations were made by one of the most competent actuaries of the era, Kauko Poranen. The board chairman changed in 1973 from Erkki Pesonen to Altti Aurela, so there was ample actuarial knowledge in the fund's administration as well.

Property returns weaken – the industry's competitiveness and work ability as a concern

After the expenditure had multiplied, the fund investigated immediately in 1971 the possibilities for making investments more effective. The council dealt with the question at its ordinary meeting and at two extraordinary meetings. MEK's investments were divided according to the original guidelines: into vessel credits and rental dwellings. People were long satisfied with the secure housing investments required by the act. In the early 1970s they helped with the housing shortage of seafarers in southern Finland, from Åland and the Turku and Helsinki regions all the way to Hamina. In addition, it was set out that "the provision of other forms of service for seafarers too may be necessary".

In Kotka a seamen's service house was financed already in 1972. For the practical operations the state and various organisations were responsible. In addition, in the early 1970s the possibility was planned, together with the financial institutions, of providing owner-occupied dwellings for seafarers with a reasonable quarter's self-financing. As building costs rose and there was a shortage of plots, especially in the capital region, cooperation on the leasing of building land was sought with other earnings-related pension institutions.

The rise in costs that began with the 1973 oil crisis, together with the rent regulation agreed in the UKK agreement, lowered the yields, even below two per cent. In not a single year in the 1970s was the five per cent calculation-basis interest rate set for pension investments achieved, so the growing costs were not curbed with property investments. Support for housing was, however, socially almost indispensable. According to the seafarers' housing study of 1976, every fourth active seafarer was still "in urgent need of a new dwelling, and of the pensioners every fifth was in the same situation". The diversification of housing support, already planned earlier, gained confirmation for its continuation.

Half of the fund's 1,150 dwellings were located in the capital region in 1980, which according to the studies was also the most sought-after place to live. By then the fund's own building foreman had already long managed the properties and the new building projects. The number of property employees had grown to 20. On the initiative of the Ship's Officers' Union, a separate building committee was set up in 1977 for the planning, the steering of building and also the administration of the properties.

Crediting the shipowner employers more effectively, but evenhandedly, gave even more to ponder than the properties. The industry, operating in the grip of the growing international competition, needed ever better, and thus more expensive, ships. On vessel credits a general interest rate of 7–8 per cent had been applied up to the end of the 1960s. Now the interest rates began to move with the fluctuations of the state's interest-rate policy.

A study made for the council in 1971 stated that "MEK is a significant financial institution, whose share of the domestic credits that shipping received from banks and insurance institutions in 1967 was nearly half". Despite the large volume of loans, "a one per cent rise in the interest rate would bring an additional income of the same size as if the MEL insurance contribution were raised by two tenths (8.0% – 8.2%)". It was further stated that "charging a higher interest rate hampers the industry and is apt to [channel] the assets into secondary, speculative investment", of which there was experience from the time of the earlier index clauses. The council decided that "the credits must relate to such an acquisition as is apt to develop the domestic merchant fleet and secure its continuity". More important than interest yield the council considered it that the fund, for its part, sees to the industry's functioning and to stable employment.

Outside shipping, MEK took part in 1976 with a small share, together with other pension institutions, in the subscription of an atomic power plant loan that had been ongoing since 1975, which took over 2 per cent of the fund's contribution income. The investment was, to be sure, risk-free, and participation in corresponding bonds within the pension system continued.

The cost pressure could in principle have been eased by lowering expenditure. In statutory operations that could be realised only if the disability pensions decreased. Their number remained stubbornly large and was half of the number of pensions and of pension expenditure in 1956–1980. The causes of incapacity for work changed from the diseases curable with medicines in the early days to more difficult ones, and mental illnesses began in the 1970s most often to lead to pension. The matter was given attention, and the fund funded studies on seamen's mental health problems and their causes as well as rehabilitation. The number of those rehabilitated was only small, a few persons annually.

The fund had only indirect possibilities to influence the maintenance of seafarers' health and working capacity. Seafarers' trade organisations considered it important to direct the fund's investments more, and more diversely, into what in present-day terms is called occupational well-being. After years of preparation, the council changed the ratio of investments so that the percentage of vessel credits was lowered to 70. The ratio for dwellings and other purposes serving the seafarer's benefit, such as education, hobby and recreational activity, was raised to 30 per cent of the future investments. With the change, the aim was to guarantee "the seafarer a continuous possibility to work in his profession". The fund's studies supported such a comprehensive view of working capacity and of coping at work. In investments, an obligation was imposed to see evenhandedly to the interests of both paying parties, the employees and the employer, but still to serve merchant shipping.

The fund's operations were managed responsibly and cost-effectively, for the management costs rose during a couple of years in the 1960s, but until the 1980s stayed at about two per cent. The largest investment was the move to the premises at Uudenmaankatu 16 A in 1969, where the fund operated for over 40 years. The fund's popular answering service helped seafarers in pension matters from 1975 onwards.

Contributions rise and pensions are at different levels

To secure the fund's solvency, a stepwise raising of the insurance contributions to 5 per cent in 1975 and to 6 per cent in 1977 was decided in 1973. The raises were in line with the then changes in earnings-related pensions. The TEL contribution rose only then to the same size, 12 per cent. The general accrual of earnings-related pensions, in turn, was changed to the present 1.5 per cent of annual earnings, and level increases were made to the benefits. The target level of MEL accrual rose to 60 per cent for those who had served long, and survivors' pensions were improved. In addition, it was ensured that, as a result of the changes made, the benefits would not weaken on account of Kela coordination.

Although the pension contributions rose, the simultaneous pension increases tied to wage development were even larger than they. From the beginning of 1975 the increase to earnings-related pensions was 21.6 and the following year 20.6 per cent, and a year later a further 13.6. In his anniversary presentation for MEK's 20th anniversary in 1976, Teivo Pentikäinen said that the seafarers' pension still held its "leading position". This was due to the slower entry into force of TEL pensions, the longer earning period and the stricter coordination, and further to MEL's general deferral increases. On the basis of the figures this was indeed so, for in 1977 the average MEL old-age pension was 1,670 mk/month, while TEL monthly pensions were 675 mk and LEL pensions 351.[12]

The seemingly dazzling index increases and the average MEL pensions do not reveal that not everyone's pensions were large. That same year, 1977, the men's average pension already exceeded 2,240 mk/month, but among women it was a third of this, that is, 720 mk. The difference is underlined by the fact that widows' pensions in the 1970s were larger than the pensions that women seafarers had accrued through their own work. In the fund it was pointed out that "the difference was due to women's short sea-service time". It is true that women generally began on a ship much later than men, but earnings also had an effect. Women on average continued in maritime work for years longer than men, a difference that grew further in the 1980s.

Another group receiving a small pension was persons who, despite the changes described above, had on account of their short maritime work a right to compensation for their own contributions, that is, to a paid-up policy. Although MEK constantly stated that "most paid-up-policy pension recipients receive their principal pension from other systems", these accrued earnings-related pension only from 1962 onwards. These persons' pension income consisted mainly of the national pension.

Adjustment with contributions and voluntary benefits

The downturn in the economy and in international shipping deepened. Large Finnish shipping companies that had invested in oil tankers went bankrupt in the late 1970s, and the interest-rate level swung from month to month. To ease the employers' plight, all pension contributions were temporarily lowered by two percentage points in 1978. In MEK and in the sector's organisations the practical arrangement of the matter produced much sorting-out, when at first it was not known whether seafarers' contribution would also be lowered.[13] In the end it was agreed that the shipping companies discharged the 2 percentage-point contribution reduction as the same kind of debt commitment to the fund as in TEL premium lending. The temporary 1978 reduction had to be paid back within four years. The employees' contribution remained six per cent. Despite the difficulties, the merchant fleet reached its peak in 1980, nearly 2.5 million tonnes.

The largest pension increases ended, for in 1977 the whole earnings-related pension system moved to the half-way index. Pensions followed earnings by 50 per cent, with prices having an equal effect. The unemployment pension, which had belonged to the earnings-related pension already from 1971 onwards, was added to the fund's benefits. The lowering of the age limit from 60 first to 58 and then to 55 years obliged it to be added, with the increments accruing for the period of unemployment, to MEL from 1980. The unemployed and ageing seafarers would namely no longer have been able to go directly into old-age pension. In the first year, 38 insured persons received the unemployment pension.

Another change prepared over several years related to the lowering of the pension age, which in the 1970s rose into a major pension-policy question. The trade union the Metalworkers' Union condensed the demands into the slogan "retirement age 50 for the iron-fists", so why not also for seafarers. The Ship's Officers' Union had already in 1972 proposed a lowering of its 60–65 pension age, but this was rejected with the mathematician Poranen's calculations: "The officers are not as a group in such a much worse position than others that a lowering of their pension age could be justified". In addition, the officers' pension age was higher than the crew's, but it was nonetheless, when the service time was fulfilled, five years lower than the 65 years applied in the other private pension acts.[14] It would have been difficult for the fund's board to justify an even lower age for one of its special groups, of whose on average well-levelled pensions the state still paid a part. The shipping companies, however, gained a channel to arrange in MEK "a better pension security than the benefits prescribed by law", which would give the possibility to bring the pension forward. The change was justified on the grounds that voluntariness "had been proposed in connection with the handling of the officers' pension age, whereupon the costs resulting from it would not burden the compulsory insurance". The TEL act had already in 1961 contained a similar right.

With voluntary insurance, a response was also made to the tightening of international competition. Finnish shipping companies joining as part-owners in foreign shipping companies had taken Finns to work on vessels chartered under a foreign flag. To avoid breaks arising in pension security, the shipping companies were given the possibility in these situations to take out a voluntary insurance with MEL benefits. Voluntariness had been pondered already in 1965. It was also a question of uniformity, for on a Finnish vessel foreigners were already in this position with regard to pension security.[15]

A quarter-century of seafarers' pension security

In 1980 the fund's personnel, which had grown to over 20, handled the insurance of nearly 16,000 seafarers. The pension recipients were altogether 4,203, of whom the majority, a good 3,000 (20%), were on old-age or disability pension. Survivors' pension was received by 1,061 beneficiaries. The ratio was much the same as in the whole of pension security, where the number of pensioners exceeded a million in 1979. The fund stated that the average "level of the seafarers' pension can be regarded as satisfactory" (2,050 mk/month), but the variation remained large (men 2,864 mk/month and women 863).

In the insurance calculations completed in 1979, their author Poranen summed up that "the conclusions on the calculation bases of the incapacity phenomenon" showed that the "invalidisation observed" among the fund's insured "had to be regarded as a permanent phenomenon", and as greater than among other earnings-related-pension insured. In them TEL and LEL were compared. The "contribution level" raised only a couple of years earlier "would not secure the fund's solvency". On the level required over the longer term, Poranen drew up several models, partly with contribution, investment and funding calculations extending all the way to 2030. The contribution was raised in 1981 to a total of 14 per cent. A following raise of the contribution was also being contemplated. In the justifications, the differing conditions of the disability pensions in the other private earnings-related pension acts and in MEL were left out of account. "The Seafarers' Pensions Act has adopted so-called social incapacity for work instead of the medical", which had been stated already in the explanations of MEL in 1956.[16]

In addition to these measures, MEK's board gave "in accordance with his consent the assignment of making a preliminary report on the securing of solvency to Professor Teivo Pentikäinen, to be ready by the end of 1981". He had retired from the managing directorship of Ilmarinen in 1977. The law's drafter and the board chairman of the early years, Pentikäinen, began to set his creation to rights with the help of Porasto's calculation services.

_{[1] Hannikainen (2019) p. 320.}

_{[2] The system competition has also been called the pension war, which ended in 1975 in a compromise between the earnings-related pension and Kela.}

_{[3] MEK annual report 1967 p. 2. Seafarer's Pension (1956), the explanatory part "The rights of those who leave the seaman's occupation before receiving a pension".}

_{[4] The first incomes policy agreements, with their social-security packages, are generally known after Keijo Liinamaa, who led the negotiations. Liinamaa, as national conciliator, was involved in resolving the shipping strikes of the 1960s.}

_{[5] Häggman (1997) p. 178.}

_{[6] MEK annual report 1971 and tables.}

_{[7] E.g. MEK board 3/4/71 and 2/15/71.}

_{[8] MEK board 5/14/77, appendices 1 and 2, and Kallio et al. MEK board 1/23/76 Appendix 1 "Seafarers' Housing Study".}

_{[9] MEK council meetings 1971 and appendices; MEK board 2/12/76 and appendices; Ansioiden mukaan (2012) pp. 410–412.}

_{[10] E.g. Pärssinen (1976) and the annual reports from the 1970s.}

_{[11] MEK council 15.11.1977 § 5 and appendices.}

_{[12] MEK council: Pentikäinen 27.4.1976 and MEK board 15/77 appendix 2.}

_{[13] E.g. MEK board 13/28/77 appendix 2, the Finnish Shipowners' Association's letter 9.11.1977, in which this was proposed.}

_{[14] MEK board 4/19/75, Appendix 2; Ansioiden mukaan (2012) pp. 209, 216–223.}

_{[15] MEK board 3/22/79, Justifications; on the background see MEK board 1/8/65 and 1/9/65.}

_{[16] MEK board 2/12/79 esp. appendices 1 and 2; Seafarers' Pensions Act (1956) p. 8.}

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