The pension system in Finland
In 2015, the pension contribution in Finland is 24% of the gross salary. The employee pays this portion in addition to the pension contribution paid by the company, but there is one big BUT:
– part of the pension contribution that the employer pays is deducted from the employee’s salary, that is, the employee actually pays a fairly large part of his pension.
– the pension contribution and the employee’s part of this contribution are mandatory. Every time a worker receives a salary, the pension-related contributions are deducted from it.
– the employee’s pension contribution is 5.7% if the employee is under 53 years of age and 7.2% if he is 53 or older.
Employees can retire from age 63 onwards. From 2017, it will increase to 65 years.
Employees will receive a pension according to how long they have worked and have made pension contributions themselves. Example:
A 35-year-old employee comes to Finland and works in a Finnish company for 5 years, full time. His salary is €2000 per month, or €24,000 per year. He pays a monthly pension contribution from his salary, which amounts to €6840 over the 5 years, or €114 every month. This payment is mandatory and will be deducted from his salary each month after the Finnish income tax has been deducted.
For each worked year, 1.5% of the employee’s yearly salary will go towards his pension. In the example above this is €360, or €30 per month. During 5 years of work, he will then receive a pension of €150 per month and will start receiving it once he has reached the age of 65.
If he works in Finland for 15 years, his pension will be 3 times higher, that is €450 per month. In Finland, the pension is taxed with income tax, which means that this amount will still be subject to income tax.
Using a rough calculation, an average person that has worked in Finland his whole life will receive 60% of his average salary as pension (40 years x 1.5% = 60%).
The table shows gross income of €2000 per month, €24,000 per year.
|Age of employee||Working time in years||Pension contributions||Pension per month|
|30||2||2736 €||60 €|
|5||6840 €||150 €|
|10||13 680 €||300 €|
|20||27 360 €||600 €|
|40||54 720 €||1200 €|