The Finnish Pension Center (ETK) published its new study comparing pension costs (measured by total income from contributions paid in 2020 by workers, employers and the State, as a percentage of GDP) in 8 countries (Denmark, Finland, France, Germany, Italy, the Netherlands, Norway and Sweden). The report considers mandatory PAYGO and occupational pensions (it does not cover the third voluntary savings pillar).

According to the results of the study, the country with the highest contribution income is Italy (16.8% of GDP; see Chart 1), which has one of the highest old-age dependency rates and a pension system that is almost entirely funded by PAYGO and provides relatively generous benefits. Denmark has the second highest contribution level (16.7% of GDP) despite the fact that its old-age dependency rate is among the lowest. This could be considered a reflection of the high level of occupational pension income, as well as the universal and relatively high level of the country’s basic pension.

At the other end of the spectrum, the lowest contributions are in Sweden (12.1% of GDP), reflecting a low old-age dependency rate and low pension expenditure. Finland is close to Sweden, despite the fact that its old-age dependency rate is comparable to that of Italy and pension expenditure is higher than in any of the other countries studied. However, pension levels in that country are lower than in Italy.

Finland and Sweden prepare for population aging

According to the report, many things affect the level of contribution income: population structure, the use of pension assets, pension levels and the effective retirement age.

Sweden and Finland have prepared for population aging by financing part of the contributions. Finns also considerably postponed retirement in the last decade (2010s). All the countries included in the comparison have slowed pension expenditure growth by adjusting pensions to the evolution of life expectancy.

The cost of pensions for Sweden and Finland is also lower due to pension levels in these two countries: they are in line with the EU average but are lower than in most other countries included in the comparison. Denmark and Italy are at the other end of the scale.

“The Danish national pension, financed by the State, is generous and is paid to all. The high level of Italian contribution is explained by population aging, high benefits, and limited capitalization,” explains the main advisor to the Finnish Pension Centre, Antti Mielonen.

To read the full study, click here.