A seemingly minor change in Finland to the way occupational pension contributions are set could increase competition on administrative costs among the big four private sector occupational pension providers – Varma, Ilmarinen, Elo and Veritas.
The four earnings-related pension insurance companies have filed a request regarding the basis for calculating the 2023 pension contribution for private sector employees in the TyEL scheme with the Ministry of Social Affairs and Health.
Apart from the main point of the request – that the TyEL contribution for 2023 will remain at the same level as in 2022, and represents on average barely 24.84% of the salaries on which the contribution is based – it also includes a legal amendment.
From January 1, 2023, Varma announced that there will be new earnings-related differences between pension insurance companies in TyEL contributions.
“In the future, each earnings-related pension insurance company will determine its own TyEL contribution component required for the implementation of earnings-related pensions and the assumption of insurance policies, in other words, a so-called expense loading component, and it will be directly taken into account in the customer’s TyEL contribution, ”specifies the mutual insurer.
Varma’s actuarial director, Ritva Tarkiainen, told IPE that the administrative cost component – the element that each supplier will be able to determine separately – is 0.25% of salaries on average.
“Until now, the TyEL contribution and the administrative costs component it includes, before customer premiums, have been the same for all private sector employers, regardless of their earnings-related pension insurance company” , she said.
“The most profitable pension insurance funds reimbursed the savings made on administrative costs as part of the customer bonuses for the following year.
“From now on, each pension company will directly predetermine the administrative costs component, which is part of the TyEL contribution, to correspond as closely as possible to its actual operating costs,” Tarkiainen said.
“I hope the change will be easier for customers from a transparency and comparability perspective than it looks now,” she said.
At Ilmarinen, chief actuary Barbara D’Ambrogi-Ola said she thought the change was good.
“The idea behind this change is to increase transparency and encourage businesses to operate more efficiently without a lack of quality in the services provided,” she told IPE.
“In this way, for the first time in the history of the Finnish earnings-related pension system, customers can see the actual administrative costs.
“For the first time in the history of the Finnish earnings-related pension system, customers can see the actual administrative costs”
Barbara D’Ambrogi-Ola, Chief Actuary at Ilmarinen
“On the other hand, this change encourages providers to increase their own efficiency without diminishing the quality of service in order to remain appetizing to customers,” she said.
But this was not the first time that earnings-related pension insurance companies could determine the cost of an element of the TyEL contribution, she explained.
“In fact, since the year 2018, each pension insurance company distributes the customer premium according to its own rules which have been approved by the Minister of Social Affairs and Health, she said.
However, from January the same option would now be available regarding administration fees, she said.
In principle, D’Ambrogi-Ola said, the change was significant.
“From the perspective of the pension system, this means that companies in the future will try to reduce expenses and increase investment returns more than their competitors.
“Both of these intentions will help reduce the TyEL contribution without changing the contribution used to pay current and future pensions,” she said, adding that this was a positive development for both employers and workers. employees.
The Ministry of Social Affairs and Health is expected to confirm the earnings-related pension insurance contribution in mid-November.