The pension system in Finland

In 2015, the pension payment was 24% of the gross salary in Finland. The employee pays this in addition to the pension payment contributed by the company; however, there is a big BUT:

– the part of pension payment contributed by the employer is deducted from the employee’s salary, i.e. the employee actually pays a rather large part of their pension.
– the pension payment and the employee’s share of this payment are mandatory. Pension-related payments are deducted from each instance of the employee receiving any wages.
– the employee’s share of the pension payment is 5.7% if the employee is under 53 years old and 7.2% if the employee is 53 or older.

Employees may retire in Finland starting from age 63. This will be increased to age 65 starting from 2017.

Employees receive pension based on how long they have been working and making their own pension payments. For example:

A 35-year-old employee comes to Finland and works at a Finnish company for 5 years full-time. His salary is €2000 per month, or €24000 per year. Every month, he pays the pension payment from his salary, which across 5 years is €6840, or €114 per month. This payment is mandatory and withheld from his salary every month, after the deduction of Finnish income tax.

For each employed year, 1.5% of the employee’s annual salary is calculated as his pension. According to this example, it is €360, or €30 per month. After 5 years of employment, he will receive €150 per month as pension, starting from age 65 onwards.
If he works in Finland for 15 years, then his pension will be three times bigger, or €450 per month. In Finland, pension is taxable with income tax, meaning that income tax will still be deducted from this amount.

According to very rough calculations, the pension of the average person who has worked in Finland for their entire life will be 60% of their average salary (40 years x 1.5% = 60%).

Table, gross salary €2000 per month,
€24 000 per year.

Age of employee Number of years worked Pension payments Amount of pension per month
30 2 2736 € 60 €
5 6840 € 150 €
10 13 680 € 300 €
20 27 360 € 600 €
40 54 720 € 1200 €

 


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