SYL has brought up the topic of intergenerational equality for discussion. Younger generations have started to ponder on the sustainability of our pension system, because the prospects for growth in the coming decades are weaker than in the past. After the war, thanks to the economic growth, the next generation has always been more affluent than the previous one, but despite the recent growth, our national economy is still not on par with that of 2008.
The rise in the standard of living in the past decades has also led to an increase in study time, standard of education and life expectancy. Finland’s population continues to age, and the need for health and social services and their expenses are growing dramatically.
The Nordic welfare state model aims to even out income disparities between different stages of life. The net payers of the system are the working-age people who pay more taxes and social insurance contributions than they receive benefits. The Finnish system provides an exceptional amount of support for children and young people when compared to other countries.
The employee pension scheme, established in 1962, is the most significant income distribution system between generations. The Finnish employee pension scheme is an earnings-related, benefit-based, exceptionally comprehensive mixed system with a partially funded scheme. The amount of TyEL contributions has been gradually increased for 50 years. The older age groups have constantly received unfunded pensions, which has been justified by saying that it is compensation for the sacrifices they made during the war years and that it helps avoid pensioner poverty. The collection of contribution surpluses has also been possible because of the favorable age structure, and the funds consolidated by pension insurance companies total more than 190 billion euros. The pensions paid today are already bigger than the TyEL contributions received by our pension companies.
Because of our TyEL system, older age groups paid lower contributions than now and retired earlier, while the younger age groups live longer. This means that our pension system is more advantageous to older age groups when looking at the profits gained from the pension contributions. The end result is not necessarily unfair, however, because younger age groups have higher real income, they are healthier and live longer.
At the time of writing, concern has been raised in public about young people’s pensions. Finland’s Nobel laureate in Economics Bengt Holmström is concerned that there will not be enough pensions to go round for the future generations. The management of pension insurance companies is more optimistic and asks people not to worry.
The key issues for the sustainability of our pension system are perhaps how Finland’s age structure will develop in the future, what kind of economic growth we can achieve, and how we can adapt to the inevitable digital revolution with its robots and artificial intelligence. Under the pressure of international competition, it is not healthy for us to increase or even maintain our high total tax rate and level of contributions. If we continue doing this, too many educated young people will leave the country, and the sustainability of our national economy will become even worse.
In order to secure the pensions of future generations, we need to get our national economy growing and constantly renewing itself. Of course, the growth must be achieved sustainably by utilizing Finland’s strengths and taking care of our environment, for example.
Our population is aging so fast that I do not believe that Finland will achieve sufficient growth without successful labor immigration. Structural changes to public finances are also crucial. For their own benefit, young people should demand for an effective social welfare and health care system in our country, and fast. Also, our national economy will not grow unless our companies are able to strongly renew their operations and see Finland as an attractive place for the development and growth of their business.
I am an optimist: we can get Finland on the road to growth, boost the economy, renew our companies, and there will be enough pensions to go round also for our grandchildren.
The writer is a Master of Science in Technology from Helsinki, and the Finnish honorary title of vuorineuvos was conferred on him by the President. He served as SYL’s Secretary General in 1976 and 1978. In 1977, he was on leave of absence for performing military service. Today, he is a reserve captain and acts as Chairman of the Board for several listed companies.