Employee Pension Contribution to Change - What It Means

Finnish pension provider Varma has announced upcoming changes to employee pension contributions, set to take effect from the beginning of 2017. As part of a competitiveness agreement, employee contributions will see a phased increase through 2020, while employer contributions will be reduced accordingly. The stated aim of this agreement is to enhance the competitiveness of Finnish businesses and stimulate job creation.

These contribution adjustments are linked to a broader pension reform commencing simultaneously. Employee participation in funding their pension security through their own contributions began in 1993. Initially a temporary measure, it became a permanent part of the system in 1994. At that time, the deduction of the employee contribution from the pensionable salary was justified as maintaining the balance between earned income and pension benefits.

The new pension reform will eliminate this deduction method by 2025. Specifically, the employee's pension contribution will no longer reduce the pensionable earnings. Varma highlights that this change is expected to improve the pension levels, particularly for younger individuals entering the workforce after the reform. The system aims for greater transparency, with contributions directly correlating to improved pension security.

The competitiveness agreement dictates a 0.20 percentage point increase in the employee's statutory pension contribution for the first two years, followed by a 0.4 percentage point increase annually until 2020. By 2020, the employee's contribution will be 1.2 percentage points higher than current levels. Concurrently, employer contributions will decrease by the same margin.