Finland is one of the European countries with the fastest-aging society. According to the Eurostat data, number of Finns aged 65 and more has increased from app. 7% to above 17% in the period 1960 – 2011. Value of this ratio rose faster only in Portugal, Germany, Italy and Bulgaria.

At the beginning of the 90s Finland experienced an economic slump. One of its effects was sharp increase in unemployment. In order to mitigate social costs, Finnish government developed policy aimed at early leaving from the labour market. It was achieved through number of programmes such as early pension schemes, disability payments as well as unemployment benefits.

Easily available benefits increased pensions’ expenses from 7% to 9% of GDP between 1990 and 1996. Furthermore, in the same time unemployment benefits’ expenses rose from 1,4% to 4,3% of GDP .

In the light of worsening demographical forecasts as well as deteriorating situation of public finance, the government decided to introduce number of reforms. They were aimed at increasing effective retirement age.  Major means of accomplishing this goal were: increasing age that enables using particular deactivation benefits as well as gradual liquidation of disability payments for people with benign medical conditions and early retirement for the unemployed.

Reforms of the pensions system delivered expected results. The ratio of expenses on disability payments to GDP was brought back to the level from the 80s. The ratio was decreased by more than 1,5 percentage points, from almost 5% to approximately 3,5% of GDP. Furthermore, in the case of unemployment benefit expenses, they were lowered from 5% in 1993 to approximately 2% of GDP at the moment.

As the result of introduced changes the employment indicator among people aged 55-64 rose from 36% in 1995 to almost 57% in 2011. Moreover, number of people aged 55-62 years old using deactivation benefits decreased and occupational activity coefficient among people approaching retirement age increased from 43% in 1995 to 61% in 2011.

 Chart 1. Employment ratio in Finland between 1992 and 2010.

Source: Eurostat