Finnish earnings-related pension contributions outpaced by growing expenditure

Finnish earnings-related pension contributions have continued to be outpaced by growth in earnings-related pensions expenditure in 2021, according to updated figures from the Finnish Pension Alliance (Tela).

The data showed that earnings-related pension contributions and the state's shares in the private sector totalled €18.6bn in 2021, up from €16.8bn in 2020, with €15.1bn of this used to pay earnings-related pensions.

The remaining €3bn was placed into investment funds, whilst €0.4bn was put towards the operating expenses of the authorised pension providers, including all operating expenses incurred by providers.

Increases in total contributions were more than offset by growth in the total earnings-related pensions paid in 2021, however, which rose from €18.9bn in 2020, to €19.4bn in 2021, requiring an additional €4.2bn to be withdrawn from investment funds.

This is not an uncommon occurrence, as Tela explained that earnings-related pension expenditure in the private sector has been greater than the income obtained from the pensions contributions collected since 2013, with investment funds covering this difference.

In light of this, Tela emphasised that "investments play an important role in the payment of earnings-related pensions", suggesting that this will become increasingly important in the coming decades amid further growth in earnings-related pension expenditure.

According to the data, private sector earnings-related pension funds delivered investment returns of €24.9bn in 2021, which pushed earnings-related pension assets in the private sector up €23.7bn to €159.7bn, as at the end of 2021.

Similar trends were also seen in the public sector space, as Tela noted that the amount paid out in earnings-related pensions in the public sector has been greater than the amount of earnings-related pension contributions since 2017.

Indeed, the analysis showed that whilst earnings-related pension contributions and the state’s shares totalled €10.5bn in 2021,the total amount of earnings-related pensions paid in the public sector in 2021 was €11.1bn, requiring an additional €0.7bn to be taken from funds.

Investment performance in the public sector was also positive in 2021, recording €14bn in investment returns in 2021, which pushed assets up by €13.3bn, meaning that earnings-related pension funds in the public sector had total assets of €95.2bn as at the end of 2021.

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