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The Finnish Pension Reform of 2005

Author

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  • Lassila, Jukka
  • Valkonen, Tarmo

Abstract

A major reform in the Finnish private-sector earnings-related pension system came into effect on January 1st, 2005. It was negotiated in 2001 2002 between the central organisations of employers and trade unions and representatives of the central government. This paper describes the reform and analyses its effects on selected macroeconomic variables, on the pension system and on the position of different birth cohorts and different educational groups. The reform appears to be successful in many respects. It simplifies the private-sector pension system and makes it a model that other pension systems in Finland will converge to. The reform rewards postponing retirement. It curbs the increase in contribution rate without endangering the adequacy of replacement rates. The increase in labour supply will have beneficial welfare effects. The new system also responds rather well to uncertain future demographics. Despite this apparent success of the reform there remains a serious doubt of its adequacy, as contribution rates are still expected to rise by several percentage points.

Suggested Citation

  • Lassila, Jukka & Valkonen, Tarmo, 2006. "The Finnish Pension Reform of 2005," Discussion Papers 1000, The Research Institute of the Finnish Economy.
  • Handle: RePEc:rif:dpaper:1000
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    References listed on IDEAS

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    1. Alho, Juha M. & Hougaard Jensen, Svend E. & Lassila, Jukka & Valkonen, Tarmo, 2005. "Controlling the effects of demographic risks: the role of pension indexation schemes," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(2), pages 139-153, July.
    2. Lassila, Jukka & Valkonen, Tarmo, 2001. "Ageing, Demographic Risks, and Pension Reform," Discussion Papers 765, The Research Institute of the Finnish Economy.
    3. Kotlikoff, Laurence J & Smetters, Kent A & Walliser, Jan, 1998. "Social Security: Privatization and Progressivity," American Economic Review, American Economic Association, vol. 88(2), pages 137-141, May.
    4. Fehr, Hans, 2000. " Pension Reform during the Demographic Transition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 419-443, June.
    5. Seija Ilmakunnas & Mervi Takala, 2005. "Promoting Employment among Ageing Workers: Lessons from Successful Policy Changes in Finland," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(4), pages 674-692, October.
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    Cited by:

    1. Henri Sterdyniak, 2007. "Active Ageing Strategies to Strengthen Social Inclusion : discussion paper," Working Papers hal-00972902, HAL.
    2. Lassila, Jukka & Valkonen, Tarmo & Alho, Juha M., 2014. "Demographic forecasts and fiscal policy rules," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1098-1109.
    3. Janne Salonen & Lasse Koskinen & Tapio Nummi, 2020. "The risk of under‐insurance in the Finnish statutory pension scheme for self‐employed workers: A trajectory analysis," International Social Security Review, John Wiley & Sons, vol. 73(4), pages 25-48, October.
    4. Lassila, Jukka & Valkonen, Tarmo & Alho, Juha M., 2011. "Fiscal sustainability and policy rules under changing demographic forecasts," Discussion Papers 1265, The Research Institute of the Finnish Economy.
    5. 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.
    6. Jukka Lassila & Tarmo Valkonen, 2015. "Longevity Risk and Taxation of Public Pensions," CESifo Working Paper Series 5640, CESifo.
    7. 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.

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    More about this item

    Keywords

    pension reform; population ageing; stochastic population simulations;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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