Three aspects of the 2025 pension reform

Investing pension assets is a sensible way to increase the collective pension wealth. Good investment returns help keep the pension contributions down and make sure that reasonable pensions can be paid also in the future.

Pension contributions have been funded for decades to secure pensions. In the future, the importance of pension assets will continue to grow because Finland has a low birth rate.

The investment activities of pension funds are managed by earnings-related pension institutions, such as earnings-related pension insurance companies. In practice, about a quarter of the pension contributions are invested for future generations. There is already more than 250 billion euros (in 2024) in Finnish pension funds.

Reforming Finnish earnings-related pension investments is part of a wider pension reform based on a goal set by Petteri Orpo’s government.

The Government Programme says that the pension reform must make public finances stronger by about 1 billion euros. One way to do this is to improve the investment returns on pension assets.

In Finland, there are strict rules and supervision for managing pension assets. These rules cover, for example, diversifying investments, managing risks and being transparent about what is being invested in.

Under law, Finnish earnings-related pension assets must be invested profitably and securely. Profitably means getting the highest possible returns from investments. Securely means avoiding unnecessary risks when investing.

The rules about investing are called solvency regulations. These rules decide how risky the investments can be. Public sector pension providers, such as Keva, are not subject to these rules.

The Financial Supervisory Authority (FIN-FSA) supervises the investment operations of Finnish earnings-related pension institutions.

The reform will help private-sector pension providers get better returns on pension asset investments.

Better returns are sought by changing the rules about investing. This makes it possible to invest more in shares and reduce forced sales in bad times.

The changes also increase leverage in real estate investments and limits premium lending.

Looking for higher returns increases the risks of pension asset investments.

An automatic stabiliser is a way to make sure that the pension system adapts to changes in society.

When pension funding is kept in balance, it is possible to pay reasonable pensions also in the future.

The automatic stabiliser does not get rid of policy decisions related to pensions, but it does mean that the need for them is smaller.

The automatic stabiliser is part of a pension reform based on a goal set by Petteri Orpo’s government.

The Government Programme says that the pension reform must make public finances stronger by about 1 billion euros. The Government also asked for a rule-based mechanism that stabilises pension financing in the long run.

The inflation stabiliser will cut increases in pensions in payment if the earnings-related pension index increases faster than the wage coefficient over a two-year period.

In practice, the inflation stabiliser will be linked to earnings-related pension indexes.

Two indexes are used for earnings-related pensions:

1. The earnings-related pension index is used to adjust earnings-related pensions in payment each year to keep their purchasing power. The index mostly follows the change in the general price level.
2. The wage coefficient makes sure that the value of the accrued pension does not go down just because earnings go up. It is used at the time of retirement. It mostly follows the change in the amount that people are paid in wages.

The inflation stabiliser reduces the earnings-related pension index if the pension index increases more than the wage coefficient for two years in a row. Such situations are rare. Wages usually develop faster than pensions.

The goal of the inflation stabiliser is to limit the growth of pension expenditure by preventing exceptionally high pension increases over several years. The inflation stabiliser will be used in 2030 at the earliest.

Read more: Indexes protect the pension amount

Yes, there are. For example, the retirement age is linked to how long people are expected to live. This helps to stop costs from going up as people live longer.

Another stabiliser, called the life expectancy coefficient, aims for the same thing. It adjusts the level of pensions to the changes in how long people live. It is calculated for each age group as they approach their retirement age.

Yes, there are automatic stabilisers in, for example, Canada, Germany and Sweden.

Every country has its own system. For example, Sweden uses an index break. If the financing of pensions weakens, the index increases in pensions will go down a little. And vice versa: in a good financial situation, pensioners receive a slightly higher pension than usual. In Sweden, the pension contribution is not flexible, which means that people always pay the same amount into their pension.

The inflation stabiliser sets a limit on how much pension payments can go up. It will be put in place if the earnings-related pension index goes up faster than the wage coefficient over two years.

If this happens, the earnings-related pension index will only be able to go up as much as the wage coefficient.

For pensioners, this means that, in some years, their pensions may go up less than they would otherwise.

The inflation stabiliser could be used when prices go up more quickly than wages. This is not very common, because wages usually go up more quickly than the general price level.

At the earliest, the inflation stabiliser will be used for the first time when indexes are adjusted in 2030.

There will be no changes to pension benefits, how much pension people accrue or the retirement age. Pensions will accumulate as before, and pension benefits will not change. The retirement age will increase as decided in the 2017 pension reform.