Country Panel Presentation: Finland

Transcription

1 Country Panel Presentation: Finland 2016 IGP Regional EMEA Seminar Windsor, May 24-26, 2016 Riitta Jokelainen, Account Executive Mandatum Life This presentation was exclusively prepared for the attendees of the 2016 IGP Regional EMEA Seminar. None of the contents of this presentation may be copied or disclosed to any other party or used for any other purpose than the one mentioned above without IGP's prior written permission. 1

2 Agenda Country Information - Finland Company Information Mandatum Life Summary of Social Security Benefits Customary Private Employee Benefits Taxation Administration 2

3 Key Topics Background Information Social Security Legislation Private Practice Taxation Administration Country and Company Info & Background 3

4 The Finnish Economy Inhabitants 5.47 million GDP per capita EUR (2015) Total volume has decreased from 2011 and a small increase in 2015 Average salary EUR 3,538 per month (2015) Unemployment 9.6 % (2016) Inflation 0.3% in 2015 expected to remain on the level for the coming year Most important export countries are Russia, Sweden and Germany Largest companies in Finland Fortum (energy) Sampo (finance) Nokia (networks) UPM (forest) Stora Enso (forest) Kone (elevators) Metso (heavy industry) Pohjola Bank (finance) Neste Oil (energy) Rated AA+, S&P Source: Statistics Finland, April 2016 Source: Forbes, April

5 Trends in Finland Solvent, but challenging financial situation Demographic challenges are highest in Europe Social security benefits have decreased in the last 10 years Employment pension reform in 2017 Financial and demographic challenges are expected to cause further weakening of the statutory benefits The old tradition of high social security have led to employers to cover only top managers with supplementary benefits The recent reforms are changing the market rather fast 5

6 Mandatum Life Expert in money and life Solvent and respected financial services provider. In addition to Finland, operates in all the Baltic countries. Together with If P&C Insurance Company, forms a part of the Sampo Group. Effective rewarding Basic salary and bonus systems Rewarding of management and employees Supplementary pension Risk policies Personnel funds International services Wealth management Wealth management Portfolio management service Investment baskets Savings Tax consultation 6

7 Mandatum Life Facts and figures 2015 Premiums: MEUR (1 105) Solvency ratio: 23.6% (22.9) Manages approximately EUR 10 billion worth of customer assets 250,000 private customers, 25,000 corporate customers Employees 522 Total Market Share Corporate Customers 19.2% 40.7% Group Pension Group Pension, unit linked Corporate, risk 43.5% 59.2% 30% 7

8 Key Topics Background Information Social Security Legislation Private Practice Taxation Administration Summary of Social Security Benefits 8

9 Structure of Insurance Companies Pension Insurance Company (Varma Pension) Mandatory employment pension TyEL 1st pillar Non-life Insurance Company (If P&C) Mandatory occupational accident and group life 1st pillar Life Insurance Company (Mandatum Life) Supplementary life and pension 2nd pillar 9

10 Social Security Schemes in Finland 3rd pillar Other (private) 3) 2nd pillar Supplementary / Occupational Pension 3) 1st pillar Sickness and Maternity Medical Care Medical Care Public Health and Hospitals Sickness and Maternity Insurance Sickness Insurance Reimbursements Sickness and Maternity Daily Allowances Pension Insurance Basic National Pensions Employment Pension TyEL 1) Occupational Accident and Diseases Insurance + Group Life 2) Unemployment Benefits Basic Amounts Based on Income Family Benefits Child Benefit, Maternity Grant, Child Home Care Maintenance Social Allowances, Social Services Occupational Health Care 4) 1) Insured in pension insurance company 2) Insured in non-life insurance company 3) Insured in life insurance company 4) Arranged in private medical clinics 10

11 Elements of Statutory Benefits Benefit Benefit level in case of sickness % of salary Benefit level in case of occupational accident % of salary Old-age pension 35-50% n/a Disability pension 35-50% 85% Survivors pension 0-50% 70% Short-term disability* 30-60% 100% Group life Max EUR 16,430 Max EUR 24,645 * Paid for one year. Employer pays full salary 1-3 months depending on the collective agreement Riitta Jokelainen

12 Elements of Statutory Benefits Unemployment Daily allowance for 500 days (2 years) amounts to 30-60% of salary. If unemployed 59+ years old a daily allowance is paid until retirement age (63y). Medical Care Public medical care or Private medical care which is partly compensated by the social security system Occupational medical care is mandatory and mainly arranged in private medical clinics. Family Benefits Daily allowance during maternity leave for 11 months and one of the parents can stay home for 3 years. Riitta Jokelainen

13 Elements of Statutory Benefits Contributions in 2016 EMPLOYMENT PENSION - TyEL Employer 19% Employee (withheld from salary) 5.7% / 7.2%* Total to be paid to a pension ins. company 24.70% OCCUPATIONAL ACCIDENT INSURANCE Accident insurance Employer (average) 1.40% Unemployment insurance Employer 3.9% Employee (withheld from salary) 1.15% Group Life Insurance Employer 0.067% Total to be paid to a non-life ins. company 5.367% * Employee over the age of 53 Riitta Jokelainen

14 Elements of Statutory Benefits Contributions in 2016 cont. SOCIAL SECURITY Employer 2.12% To be paid as tax MEDICAL CARE Employee 2.10% To be paid as tax TOTAL COSTS: Employer 25.33% Employee 8.95% / 10.45%* * Employee over the age of 53 Riitta Jokelainen

15 Employment Pension TyEL 1st Pillar Mandatory Pension All employees are covered with similar benefit No salary ceilings in benefit accrual or contributions Retirement age flexible between 63 to 68 years The following benefits are included: Disability pension Survivor s pension New pension reform in 2017 Riitta Jokelainen

16 Employment Pension TyEL 1st Pillar Mandatory Pension cont. Pension is based on the salary of the entire service history DC model with a fixed indexation Accrual per annum for old-age pension is: 1.5% up to age 53 years 1.9% between ages 53 to % between ages 63 to 68 Life expectancy coefficient decreases the pension from 2010 Riitta Jokelainen

17 Key Topics Background Information Social Security Legislation Private Practice Taxation Administration Mandatory TyEL Pension Reform in

18 Pension Reform 2017 in a Nutshell Retirement age raises from 63 years to 65 years and more Retirement age and life expectancy coefficient are linked The target retirement age indicates how much additional working will be required to compensate the monthly reduction in the pension caused by the life expectancy coefficient. Pension accrual rates are harmonized The annual pension accrual rate for individuals of all ages will be 1.5 per cent of the wages (Previously the pension accrual rate have been 1.7% - 1.9% and 4.5%, depending of age) New channels to retirement A partial early old age retirement Riitta Jokelainen

19 Retirement Age Raises Gradually Year of birth Retirement age Target retirement age y 63 y y 63 y 10 m y 3 m 64 y 2 m y 6 m 64 y 7 m y 9 m 65 y y 65 y 4 m y 3 m 65 y 9 m y 6 m 66 y 1 m y 9 m 66 y 6 m y 66 y 11 m y 67 y y 67 y 2 m y 2 m 67 y 4 m y 4 m 67 y 6 m y 6 m 67 y 8 m y 8 m 67 y 10 m y 9 m 68 y y 11 m 68 y 2 m y 6 m 69 y y 11 m 69 y 8 m y 5 m 70 y 4 m y 9 m 70 y 11 m y 1 m 71 y 5 m y 3 m 71 y 11 m Riitta Jokelainen

20 Affect to existing supplementary pension policies All supplementary plans needs to be adjusted Decrease in total pension due to increase of mandatory retirement age It is stated in the mandatory pension reform that the employer is not obliged to compensate the decrease in the total pension level However, the changes needs to be discussed and informed to members Is there a pension promise to the member?

21 Reduction in total pension level Salary Supplementary pension Increase in retirement age Mandatory TyEL pension Supplementary pension retirement age 60 y 63 y 65 y Pension reform in 2017 will increase the mandatory pension s retirement ages. 21

22 Key Topics Background Information Social Security Legislation Private Practice Taxation Administration Customary Private Employee Benefits: Type & Level of Benefits / Survey Data / Plan Design / Benchmarking / Trends 22

23 Trends in Supplementary Benefits Employment Pension TyEL reforms and general weakening in social security have increased the need for supplementary benefits Traditionally, top managers have supplementary benefits New supplementary pension policies are DC and unit linked, complementing the TyEL pension level and increase in retirement age Single pension promise to one (e.g., MD) needs special arrangements Individuals do not have tax efficient tools to invest in pensions on the contrary, corporate schemes are tax efficient Some companies still have DB plans for large employee groups currently, these are closed to new members Risk benefit level is significantly lower than internationally, thus creating the need to supplement Policies are mainly administered directly from insurance company, brokers are used in some international companies Riitta Jokelainen

24 Typical Supplementary Benefits Pension: Group pension DC Retirement age 60 to 63 years Contribution 10 to 20% of salary Group pension DC Retirement age 60 to 65 years Contribution 5 to 10% of salary Group pension DC Retirement age 63 to 65 years Contribution 2 to 4% of salary Management Key employees Employees Risk benefits: Group life and disability: 2 to 3 x annual salary 1 x annual salary 1 x annual salary Medical insurance for all employees Riitta Jokelainen

25 Cash vs. Investment in Pension Insurance e e e Company s social contributions e e e Taxes (55 %) e cash in hand Cash in hand after tax e e invested in the future and taxable when retired Profit-related cash benefit Investment in pension insurance Riitta Jokelainen

26 Pooling of Benefits in Finland Group life and disability benefit (lump sum benefit) Group pension Old DB policies Not poolable (for example) Mandatory TyEL Mandatory group life Medical insurance Group pension (DC) Riitta Jokelainen

27 Key Topics Background Information Social Security Legislation Private Practice Taxation Administration Taxation of benefits (e.g. lump sum versus pensions) / Tax treatment of ER and EE contributions 27

28 Taxation of Pension Schemes Group pension insurance premiums paid by the employer are not considered as taxable income to the employee, but a deductible cost for the company. Premiums paid by the employer to an individual pension plan are tax-deductible up to EUR 8,500 per annum (lowest pensionable age 68 for new policies from 2013 onwards). Indirect employer costs are not payable on pension premiums. Employee s own contributions are not possible for members who joined after 2012 in a group pension plan. The pension, to be paid in due course, will be taxed as earned income. Riitta Jokelainen

29 Taxation of risk policies The insurance premium is deductible for companies, but non-taxable income for employees. Lump sum benefit for disability is tax exempt, whereas annuity benefit is subject to tax. In case of death, benefit for the next of kin is tax-exempt up to EUR 35,000 per beneficiary, after which it is in accordance with the inheritance tax (50% of benefit, and a minimum of EUR 35,000, is tax-exempt for the spouse). Riitta Jokelainen

30 Key Topics Background Information Social Security Legislation Private Practice Taxation Administration Legal requirements re. administration of benefit plans: actuarial valuations / communications / involvement of unions/employees 30

31 Administration of Plans Mandatory TyEL pension plans are insured either by 5 private pension insurance companies or in a pension fund Supplementary pension are either insured in life insurance companies or administrated in a pension fund. Risk benefits are provided either by life or non-life insurance companies Brokers are involved in around 10% of insurance policies All insurance companies, fund and brokers are supervised by FIVA (Financial Supervisory Authority) Riitta Jokelainen

32 Contact Info Mrs. Riitta Jokelainen Mandatum Life P.O. Box 627, FI Helsinki Bulevardi 56, Helsinki Finland mandatumlife.com