Pensioners fall into three groups – rising average pensions do not tell the whole story
By Google News Personal Finance ·
The average total pension has risen by around 50 per cent in real terms over the past 30 years. Yet behind this average are three very different groups, with substantial differences in both pension levels and how these have changed over time.
Economist Juha Rantala from the Finnish Centre for Pensions studies pensioners’ financial circumstances. He has conducted extensive research into changes in pensions and living standards and published several studies to support pension policy decisions. In his latest work, Rantala examines how total pensions – that is, earnings-related and national pensions – changed in Finland between 1995 and 2025.
We asked Juha six questions about changes in pension provision.
To put it simply, pensioners fall into three distinct groups. In Finland, we have a large and rapidly growing group of pensioners who’ve generally had long working careers. They receive only earnings-related pensions. Then there’s a smaller group whose income comes from both earnings-related pensions and pensions paid by Kela. They’ve often had fragmented careers in low-paid work.
The third group is quite small: pensioners who’ve never been in paid employment. They rely entirely on a national pension or a guarantee pension.
I think it’s important to look at the roles of earnings-related and national pensions for each of these three groups. The groups differ in size, composition and pension levels. They’ve also changed significantly over the period I’ve studied.
Over the past 30 years, the number of people receiving only an earnings-related pension has risen by almost a million. At the same time, the number receiving both an earnings-related pension and a pension paid by Kela has fallen by almost half a million, and the number receiving only a pension paid by Kela has fallen by around 70,000.
You can also see these changes in each group’s share of Finland’s roughly 1.6 million pension recipients. The share receiving only an earnings-related pension has risen from 5 to 66 per cent, while the share receiving both an earnings-related pension and a pension paid by Kela has fallen from 82 to 28 per cent. The share receiving only a pension paid by Kela has fallen from 13 to 5 per cent.
The make-up of the pensioner population has also changed considerably. Pensioners are now older, with particularly large increases in the shares aged 75 and over and 85 and over. The number of disability pension recipients has also fallen sharply, especially among those over 50. As a result, pensions paid by Kela have become more important for disability pension recipients.
The average total pension has risen by around 50 per cent in real terms over the past 30 years. Last year, it was almost €2,140 a month, compared with €1,460 a month 30 years earlier. But the average was higher in the largest group – those receiving only an earnings-related pension – at almost €2,600 a month last year. Pension increases in this group explain much of the rise in the overall average in real terms.
Even so, pensions in this group have been growing much more slowly since the 2010s.
Last year, those receiving both an earnings-related pension and a pension from Kela had an average total pension of €1,300 a month – about half the average for those receiving only an earnings-related pension. The biggest factor behind pension trends in this group was the gradual phasing out of the basic component of the national pension. This brought down the average total pension until 2001. For…
Originally published by Google News Personal Finance
