Pensions at 70, please, not before!

Twenty years ago, I wrote this column – revisiting it today was a real eye-opener because I am working at 74 and “lovin’it” like any hamburger muncher!

As a 54-year old, I find it hard to accept the fact that people retire below the age of 65. It is just not right that normal people stop being productive and expect pensions when the money that is put aside is non-existent or is insufficient to pay for these pensions.

If sufficient money is set aside so that other taxpayers do not have to pay then there is no problem, but in Finland, like in many other countries, very few pensions are covered by sufficient funding. In the old days, when the workforce was growing in relation to the number of pensioners, it was easy to close our eyes and believe that pensions were covered. Now, with the number of pensioners getting bigger than the workforce, things are really looking bleak. The situation is made especially difficult when people are permitted to retire below the age of 60 years.

The retirement age should be much higher and without limits for any job with a few very obvious exceptions. It makes no sense to allow people to retire before they are 67 to 70 assuming that they are fit. They are some of the most productive workers with huge reservoirs of knowledge. Only foolish and incompetent management would ever consider pensioning off such jewels within the workforce. Management should make sure that all workers enjoy the work they are doing and are motivated to be productive.

Working people should be encouraged to retrain and learn new skills no matter how old. My father retired at 67 and he is still perfectly happy at 84 years old – he saw no reason to retire earlier. Too many are being allowed to retire too early, too easily.

Pensions must be paid for or earned they are not a right of certain workers, and the fact that others have received unearned rights does not mean that today’s workers have the same rights.

Both the private and public sector need to fund pension liabilities properly. Increased pension payments or taxation will be necessary to cover promised payments unless working years are not pushed up within the next ten years.

How can you calculate what is needed for a reasonable pension? A monthly pension of €2.100 paid during 25 pension years requires savings of some €425.000 at the end of your working life. To save that amount you need to put aside €483 each month for 35 working years. I assume an annual net rate of return for the savings of 4 % over the 60 years.

In plain language this means that an amount equal to 25% of your life’s salary needs to be set aside and invested for your pension. If the average annual net return is 4% then you should receive a pension equal to your average monthly salary earned over 35 years. If you only work for 30 years you will receive a 30% smaller pension. If the average net return is higher, you will get more and less if it is lower.

The main thing to note is that an extra five years of saving is very important for your final pension. In Finland, the employer pays an additional amount equal to some 20% of your salary to a pension fund along with your contribution of 3%.

Pension schemes by their nature are complex and long-term enterprises, so change is needed sooner rather than later. Politicians are wrong not to go ahead and correct the necessary changes in the law. Their job is made more difficult by the fact the trade unions and employers unions are hopelessly entwined in the current pension organisations. It represents a power base where changes can only mean a loss of power. Recent committees looking into pensions are suspect because their members include those with strong vested interests in the current pension system. These people may be pension experts, but they can hardly be objective in their recommendations.

Changes are necessary sooner than later for us workers to get what is promised, you will be too weak to protect your rights in thirty years from now.



[1] Pensions in Finland are around 60 % of the monthly salary earned during the last few years of working.

[2] Inflation is not accounted for directly here, but assuming that it does not get out of control the assumptions and calculations are pretty safe even if they are a bit rough.

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