The Seafarers’ Pension Fund - an earnings-related pension scheme pioneer
On 1 June 1956, the first ever act on earnings-related pensions in the private sector in Finland entered into force: the Seafarers’ Pensions Act (Merimieseläkelaki, MEL). The Seafarers’ Pension Fund was established for the implementation of the law. Enacting pension legislation for a relatively small, albeit traditional group of employees signified an important first step in the development of statutory earnings-related pension security in Finland in the 1950s.
Pioneering work by Finnish experts
In the planning phase of the Seafarers’ Pensions Act, two persons played a key role: Teivo Pentikäinen (1917–2006), then the Director of the Insurance Department of the Ministry of Social Affairs, who chaired the planning committee, and Niilo Wälläri (1897–1967), who served as the Chairman of the Finnish Seafarers’ Union from 1938 to 1967.
The first MEL provided basic pension security
Initially, the pension security for seafarers was modest, comprising of only old-age and disability pensions. At the start of the 1960s, MEL was extended to include survivors’ pensions and funeral grants. The pensionable age was 60 years for crew members and 65 years for officers. Crew members had the opportunity to retire with pension at the age of 55, depending on the length of their service at sea. The same principle was applicable to officers who had reached the age of 60. The pensions were based on individual earnings.
The State covers part of the costs of MEL pensions
The liability for the pension expenditure was divided between the seafarers, shipowners and the State. It was agreed that seafarers and shipowners pay their shares in the form of annual insurance contributions. The State’s share would fall due for payment at the time the pension expenditure is realised.
New solutions in response to changing needs
In the 1960s and 1970s, the seafarers’ pension scheme was developed in the wake of the earnings-related social security for wage-earners. However, the seafarers’ pension scheme under MEL was not a part of labour market negotiations in the same way as the other earnings-related pension schemes were.
In the 1980s, the flagging out of ships resulted in problems regarding the pension security of those Finnish seafarers who remained on the ships. An amendment was made to MEL in 1987, according to which it was possible to insure those working on outflagged ships within the Seafarers’ Pension Fund. At the same time, flexible pension forms were included in MEL.
As part of the major pension reform in 2005, MEL was amended to correspond with the earnings-related pension system in general. One clear advantage of the reform was the changing of pension accrual rules so as to significantly increase the correlation between the paid contributions and the amount of the accrued pensions. For this reason, there is no longer any need to limit the maximum amount of pension to 50%, which will benefit those insured under MEL who have served at sea for a long time. In the reform, the special features of MEL pensions remained unchanged, including, for example, the slightly higher pension accrual percentage as compared to those in other earnings-related pension schemes, and the right to a lower earned retirement age.
Harmonising the seafarers pension security with other schemes in 2016 and 2017
In 2013, the Ministry of Social Affairs and Health appointed a working group to develop the benefits and funding of the seafarers’ pension system under MEL. The working group completed its unanimous proposal in summer 2014. The working group was appointed on the basis of the report by the working group established in 2011[LHE1] by the Ministry of Finance to examine the operating environment, subsidy policy and adjustment measures of maritime transport (Ministry of Finance publications 22/2012[LHE2] ). Thus, the assignment of the working group was linked with a wider review of State subsidies in the shipping industry.
The pension agreement of the labour market organisations
In autumn 2014, the working group convened again on account of the pension agreement that the labour market organisations had concluded in October 2014. The pension agreement resulted in revisions in the working group’s proposal concerning the reform of MEL. For example, the transition period for the lower pensionable age of seafarers was prolonged to nine years and the deduction of the wage-earner’s pension contribution from the pensionable earnings will not be applicable to seafarers.
The most important change due to the pension agreement concerned the pensionable ages. In addition, the pension accrual percentages were revised and new forms of pensions were introduced in the statutory pension systems, including MEL.
Following these latest reforms and a long transition period, the pension security for seafarers will be harmonised with other earnings-related pensions.