Womens’ pensions – the Facts…

If you ask 100 working people how much pension will they receive when they retire you will get only wild guesses, if that. It’s a fact that most people have no idea how pensions are calculated and how they are implemented.

It’s only when you get near to the age of retirement that you start taking an interest and that is a little too late to take action to improve pension levels.

The present pension business is great for the few who run it and benefit from it as a business, and not so great for pensioners. The main reason why this is such an interesting business for the few is because large sums of money are paid every month into the big Finnish pension funds that then invest that same money for an individual worker’s pension when he or she retires.

The money is invested in shares, bonds, real estate and in a few other less important asset classes. During this investment period and during the period of retirement, the Finnish investment funds take a rather generous management fee of around 1% here in Finland. 

If the fund takes 1% in costs and fees and the investment period is for 40 years and the pension period is another 20 years, then the investment fund can effectively pocket almost half of the income from the investment activities. That is far too big slice of the cake.

If the fund takes 1% in costs and fees and the investment period is for 40 years  and the pension period is another 20 years, then the investment fund can effectively pocket almost half of the income from the investment activities. That is far too big slice of the cake.

Finland’s present pension system is made up of five medium-sized pension funds and many smaller pension investment vehicles. The five larger pension funds are governed by various laws and are in fact implicitly guaranteed by the government. 

This pension system was set up in the 1960s with good intentions but has become a rather inefficient and expensive pension system for a lucky few. They pay themselves generous salaries and other benefits and enjoy wielding substantial corporate power. 

These five institutions could be consolidated into one single body and that would remove literally hundreds of administrators and overlapping workers. It would also substantially reduce regulatory costs. A number of the present pension funds are deliberately defying orders from the regulator. This situation is totally unacceptable and is a good example of the Wild West nature of the present pension system here in Helsinki.

The Prime Minister has recently suggested increasing pensions received by women because they are some 21% lower on average than men’s pensions. Most men and the pension companies are of the opinion that that is acceptable because women earn on average 16% less than men during their working lives and live 25% longer after retirement. According to the latter, men are actually subsidising women’s pensions.

Several economists have written notes decrying the Prime Minister’s proposal, while several female economists have been saying that the Prime Minister’s proposal deserves a more profound discussion. The latter have presented ideas related to equality, to the fact that most women are producing all of the workers, and they are the ones that take time off to care for these soon-to-be workers. In their opinion these female economists believe that women should be compensated for giving birth and caring for children.

The arguments from the male and the female economists both contain elements of truth, and, like the proposal from the Prime Minister, they should be considered as valuable points for further discussion.

Your correspondence who happens to be a financial expert is of the opinion that the Prime Minister and the female economists have a better case than their male counterparts because there is a huge need in Finland to encourage more childbirth as well as for ensuring that female pensioners are not caught in a poverty trap when they retire. That is an inhuman and unacceptable situation for women after working diligently for 40 to 45 years. Thus consideration should be given for increasing female pensions, something closer to the male pension. The exact number will not be given here.

The Prime Minister’s proposal for such an increase can easily be paid by consolidating all of the five pension bodies into a single state controlled pension body that outsources the fund management to cost-efficient fund managers. This newspaper has calculated that such a pension fund operated in the same manner as Singapore or Norway would result in a cost saving of several billion euros here is the link to those articles.

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