Demographic Trends and the Pension Problem in Finland

Lindgren, J. (1992). Demographic Trends and the Pension Problem in Finland. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-92-030

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Abstract

Projections of expenditures for old age pensions, survivor pensions, and disability pensions were made for the period 1985-2050 on the basis of future developments in the population structure by age, sex, and marital status. Four demographic scenarios were formulated: (i) a Benchmark scenario, with demographic rates kept constant at their 1980-84 level; (ii) a Fertility scenario, with a rise of the Total Fertility Rate (TFR) towards replacement level; (iii) a Mortality scenario, with reductions in mortality rates of 30 percent for females, and 45 percent for males; (iv) a Western scenario, which combines extreme demographic conditions of several West European countries: a TFR of 1.28, proportions never-marrying of one-third, one-third of marriages ending in divorce, and male and female life expectancies of 74 and 81 years, respectively.

The current pension system was combined with all four scenarios. Also, the impact of high female labor force participation, and a rise in the average age at retirement were investigated. The results indicate that changes in demographic conditions cannot prevent increases in and funding problems for pension expenditures in Finland. An increase in fertility has no effect on the pension system until 2030, when a larger generation will enter the labor force. Longer active periods for males and females will cause increases in pension expenditures in the future and are not long term solutions of the pension problem. Postponement of retirement age would help to balance the pension funds, but depends on the economic situation and on the labor market.

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