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Distributional Effects of the Forthcoming Finnish Pension Reform - a Dynamic Microsimulation Approach

Author

Listed:
  • Heikki Tikanmaki

    (Finnish Centre for Pensions, FI-00065 Elaketurvakeskus)

  • Hannu Sihvonen

    (Finnish Centre for Pensions, FI-00065 Elaketurvakeskus)

  • Janne Salonen

    (Finnish Centre for Pensions, FI-00065 Elaketurvakeskus)

Abstract

The Finnish pension system consists of earnings-related pensions (almost 90% of the total pension expenditure) and the national pension. The earnings-related pension system will undergo a major reform in 2017. The main objective of the reform is to ease the burden on public finances by extending working lives. The earliest eligibility age for old-age pension will gradually rise from the current 63 years to 65 years by the 1962 birth cohort. After that, the earliest eligibility age will be linked to the growth in life expectancy. The age-specific accrual rates will be unified after a transition period. The early retirement schemes will also be reformed. The level of the disability benefits will improve. The forthcoming reform has been analysed using the ELSI microsimulation model of the Finnish Centre for Pensions. The model is based on administrative register data and it covers both the earnings-related and the national pension system of Finland. ELSI is a model with dynamic ageing without behavioural adjustments. The behavioural changes resulting from the reform have been taken into account explicitly: the age-gender-specific behaviour is obtained from our macro model using a micro-macro link. The differences in transition probabilities between educational groups are extrapolated from the register data.

Suggested Citation

  • Heikki Tikanmaki & Hannu Sihvonen & Janne Salonen, 2015. "Distributional Effects of the Forthcoming Finnish Pension Reform - a Dynamic Microsimulation Approach," International Journal of Microsimulation, International Microsimulation Association, vol. 8(3), pages 75-98.
    • Handle: RePEc:ijm:journl:v:8:y:2015:i:3:p:75-98
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    References listed on IDEAS

    as
    1. Jukka Lassila & Tarmo Valkonen, 2007. "The Finnish Pension Reform of 2005," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 32(1), pages 75-94, January.
    2. Jukka Lassila & Tarmo Valkonen, 2018. "Longevity, Working Lives, And Public Finances," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 467-482, July.
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    Cited by:

    1. Concepció Patxot & Meritxell Solé & Guadalupe Souto & Martin Spielauer, 2018. "The Impact of the Retirement Decision and Demographics on Pension Sustainability: A Dynamic Microsimulation Analysis," International Journal of Microsimulation, International Microsimulation Association, vol. 11(2), pages 84-108.
    2. Kathrin Komp-Leukkunen, 2019. "Capturing the diversity of working age life-courses: A European perspective on cohorts born before 1945," PLOS ONE, Public Library of Science, vol. 14(2), pages 1-21, February.

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    More about this item

    Keywords

    dynamic microsimulation; Finnish pension system; pension reform; working lives;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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