Pension Power in Finland
The Finnish pension system collects, invests and redistributes yearly very large amounts of money. The largest part of the overall system, the private sector earnings-related pen-sion scheme is part of statutory social insurance system but privately run. It was created in co-operation with labour market organisations, and they still have a dominating role on the development of the private system and the management of the pension funds. Legislation concerning pensions and pension institutions has adapted to sustaining the power structure that is not derived from its principal task of providing adequate pensions without excess tax burden.
To study pensions and power in Finland, a multi-disciplinary approach is necessary. Nei-ther the distribution nor the use of power can be understood from any single disciplinary angle. Three examples justify this claim:
1. There are several pension companies and funds in Finland. This decentralisation is of-ficially motivated by competition. Since the funds have, however, a joint responsibility of paying the promised pensions, the investment policies must be heavily regulated to avoid moral hazard problems in risk taking. Here the structure causes legislative problems that have economic consequences. This is an important issue because the funds are large and thus the potential yield improvements are significant.
2. Although the earnings-related pension system wishes to stay private in Finland, at the same time it wants to appear to the European Union as a part of the public sector. The resulting judicial intricacies may become important for some pension policy considera-tions. Assume, e.g., that the Finnish pension system decides to introduce personal ac-counts similar to the Swedish system, allowing an individual to choose the portfolio of her account. Whether offering this choice would be economically or socially preferable is open to debate, but the judicial difficulties related to the specific nature of the Finnish pension system may alone prevent choosing this policy option.
3. All factors that change the operating environment of employers or employee organisa-tions, or the relationships between them, may have effects also on the Finnish pension system. Since the liberalisation of financial markets, the role of pension funds as a vehicle to finance new productive capital has lost its importance. Instead, the funds now appear to employers as an opportunity to reduce mandatory labour costs for some time - by run-ning the funds down. From the point of view of employee organisations, the funds are probably more important than before. Globalisation is reducing the power of trade unions, and a share in fund administration appears as a possibility to at least try to influence firms’ decisions.
More examples could be mentioned. In fact, searching for actual and potential situations where legal, social, political and economic aspects clash with each other is one of the main methods in this study. The decisions made in such situations reveal the essential features of power. In all cases, one should also ask whether the principal task of the system is surpassed by other targets.
The project consists of four parts. The first concerns potential power, describing the pen-sion system and its historical background, relating it to other parts of society and asking who has power in it and why. The comparison between Swedish and Finnish pension in-stitutions enables us to point out both the unique historical conditions resulting in idio-syncratic constellations of power and to describe common features in the functioning of the Nordic welfare state regimes. The use of power is then studied in two parts, concen-trating first on pension policies and then on pension funds and their investment decisions. Finally, we also study the future prospects of pension power by acknowledging that fac-tors such as globalisation, population ageing and new EU rules reshape the strategies used to compete for power and transform the existing power structures and management sys-tems.
Project team:
The four-year project is coordinated by Jukka Lassila, Research Director at ETLA. The team members are Pentti Arajärvi, Professor of Social Law at the Department of Law in the University of Joensuu, Jan-Erik Johanson, university lecturer at the Department of Political Science of the University of Helsinki, Sixten Korkman, Managing Director of ETLA, Niku Määttänen, Research Supervisor at ETLA, Heikki Niemelä, Leading Re-searcher at the Social Insurance Institution, and Tarmo Valkonen, Head of Unit in the Public Finance and Economic Policy research program at ETLA.