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Pensions Centre: Contributions hike likely

Workers in Finland may soon have to up their pension contributions, according to bosses at the national pensions centre. That will compensate for lower investment returns and higher pension spending as baby boomers retire, but it should only be necessary on a temporary basis.

Eläketurvakeskuksen rakennus. Seinissä Eläketurvakeskuksen valokirjaimet.
Image: Yle

The Finnish Centre for Pensions has warned that current funding levels might not support projected spending on pensions—and the shortfall might be made up via an increase in contributions from working-age people.

The forecast is part of the centre's projection for 2016–2085, which says that a temporary jump in contributions might be required to compensate for lower growth in investment returns and higher spending on pensions for retired people.

The centre is expecting returns of 3.0 percent in real terms over the next ten years, with that rising to 3.5 percent from 2027.

"The Centre's estimate reflects the current weak outlook for returns, above all the very low long-term interest rates," said Jaakko Kiander of pension and insurance firm Ilmarinen. "The situation could change in the future, as we've hoped since the financial crisis."

Kiander says that Ilmarinen's own long-term expectation is for returns of about four percent over the next 20 years.

The centre also says that income from pensions payments will be below previous expectations because of poorer than expected economic growth and lower wages. The current level of pension payment is set at 24.4 percent, split between employers and employees, and that will be re-assessed at the start of the next decade.

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