Towards a Sustainable and Job-Oriented Pension System in Finland

Abstract

The decline in labour force due to ageing in the Finnish economy is also at the core of the analysis by Urpo Hautala and Jorma Tuukkanen. The authors' starting point is to note that while a social security system with wide coverage, high benefits and little incentive to work can cause a substantial loss in terms of labour force and production, a properly tuned system can bolster sustainable economic growth and welfare. Hautala and Tukkanen propose a mixed pension system composed of two tiers: an actuarial defined-benefit pension and a defined-contribution account pension. They argue that the new system would provide a suitable trade-off between insurance that balances out risk (defined-benefit) and saving (defined contribution), increasing personal responsibility and encouraging work. The ensuing reduction in expenditure would avoid the increase in the tax burden that would otherwise be necessary to avoid debt accumulation.