The Complexities of Raising Finland’s Retirement Age
Antti Tanskanen, the director of the Finnish Pension Alliance, weighs in on a pressing national debate: “When you look at the issue more closely, raising the retirement age isn’t a silver bullet. Its effects will take different directions,” he asserts.
In recent discussions, some politicians and media outlets have proposed increasing Finland’s retirement age to 70 as a potential remedy for the nation’s fiscal woes. Last year, Finance Minister Riikka Purra hinted at such measures, particularly as Denmark announced its plans to incrementally raise its retirement age to 70 last spring.
Finland, known for its aging population, faces the mounting challenge of a ballooning national debt. Recently, the International Monetary Fund issued a stark warning about the country’s escalating debt and lagging productivity. To compound concerns, credit ratings agency Fitch downgraded Finland’s long-term sovereign credit rating during the summer.
Currently, nearly 30,000 individuals in Finland have been retired for over 30 years—a number that continues to rise. An article in Helsingin Sanomat last month suggested that elevating the retirement age could enhance public finances by an astonishing 10 billion euros. However, this assertion has not gone unchallenged.
Tanskanen critiques the calculations presented by Helsingin Sanomat in a recent blog post. As the head of a group that advocates for earnings-related pensions, Tanskanen brings significant expertise to the table. He argues that more accurate modeling indicates the financial gain from raising the retirement age to 70 would be closer to a mere 2 billion euros—far less than the newspaper’s projection.
“The most important thing is to arrive at a realistic estimate of the effects of raising the retirement age,” he insists.
Not a ‘Silver Bullet’
Delving deeper, Tanskanen expressed caution about framing this proposal as a straightforward solution. “Raising the retirement age isn’t a silver bullet,” he explains. He highlights that while some outcomes may bolster public finances, others could just as easily undermine them. Decisions on such a critical issue should be grounded in realistic estimates rather than overly optimistic calculations.
One of the core issues contributing to the disparity between the projected figures is the reality that not everyone is willing or able to work until the age of 70. For some individuals, this may prompt a search for disability pensions, while others might opt out of the workforce altogether.
Furthermore, those fortunate enough to continue working longer would build larger pensions, inevitably increasing pension-related expenses.
Tanskanen employed a life-cycle model, commonly applied in various contexts, to arrive at his findings. This model examines how individuals in a specific age group make financially sound choices based on their circumstances. It incorporates factors such as potential disabilities and mortality rates, offering a nuanced understanding of individual behaviors and public finance trends.
According to Tanskanen, his model provides a significantly more comprehensive analysis than the one employed by the newspaper. Ultimately, he concludes that simply raising the retirement age is not a panacea for Finland’s public financial challenges.