“When you look at the issue more closely, raising the retirement age isn’t a silver bullet. Its effects will take different directions,” says Antti Tanskanen, director of the Finnish Pension Alliance.
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There are currently nearly 30,000 people in Finland who have already been retired for more than 30 years, and that number is growing. Image: Perry van Munster / AOP
Some leaders and media outlets have suggested that raising Finland’s age-related retirement to 70 would help fix the country’s state debt problem.
Finance Minister Riikka Purra (Finns) hinted at the idea last year, while Denmark made headlines last spring after deciding to incrementally raise its retirement age to 70.
Finland is well known for its ageing population and the government has made various efforts to downsize the country’s ballooning state debt.
Last week, the International Monetary Fund issued a warning about Finland’s spiralling state debt and weak productivity. Over the summer, credit ratings agency Fitch downgraded Finland’s long-term sovereign credit rating.
There are currently nearly 30,000 people in the country who have already been retired for more than 30 years, and that number is growing.
Calculations in a Helsingin Sanomat article last month suggested that raising Finland’s age-related retirement to 70 would bolster public finances by a whopping 10 billion euros.
Antti Tanskanen, director of the Finnish Pension Alliance (Tela), questioned Helsingin Sanomat’s math in a recent post on his blog. Tela describes itself as an earnings-related pension system advocacy group with an aim to influence the sector’s general operating environment.
According to Tanskanen, more accurate modeling suggests that the financial benefit of raising the retirement age to 70 would be closer to two billion euros, rather than the 10 billion euro-sum suggested by the newspaper.
“The most important thing is to reach a realistic estimate of the effects of raising the retirement age,” he said.
Not a ‘silver bullet’
“When you look at the issue more closely, raising the retirement age isn’t a silver bullet. Its effects will take different directions. Some will strengthen public finances, while some will weaken them. Decisions should only be made when the most realistic estimates are available, and they shouldn’t be based on optimistic calculations,” Tanskanen explained.
The main reason for the major disparity in the newspaper’s and Tanskanen’s projections is that not everyone is able — or wants — to continue working to that age, he said. In those cases, some workers would apply for disability pensions, while others could choose to simply be unemployed and leave the job market.
Additionally, those who end up working longer would accrue larger age-related pensions, which would inherently increase expenses.
To reach his estimates, Tanskanen said he used a life cycle model that is commonly used in slightly different applications.
“The model tracks how people in one age group make financially sound decisions, from their own perspective,” he said.
It considers things like people’s eventual disabilities, mortality and other factors in order to paint a detailed picture of people’s behaviours and changes in public finances.
According to Tanskanen, the model he used is significantly more comprehensive and straightforward than the one used by the newspaper.
He said raising the retirement age alone would not solve Finland’s public finance problems.