Summary

Finland has a comprehensive social security system that is divided into residence and contributions based benefits, covering pensions, sickness, unemployment, health and family benefits.

Details

Contributions

The core elements of social security contributions (pension, unemployment insurance, sickness and medical) are calculated separately but in total, employer contributions total around 22%, and employee contributions around 12%, both uncapped. As such, Finnish contributions are relatively high cost, albeit generating high benefit entitlements.

Treaties

Finland has social security agreements with all European Economic Area countries and 10 non EEA countries, including the US, Australia, Canada, India and China. These agreements determine which country has the right the levy social security contributions, has the obligation to provide benefits, and prevent social security being levied twice on the same income. Most inbounds expatriates to Finland therefore continue to pay home country social security rather than Finnish contributions.

Because of the comparatively high cost of Finnish social security it is generally more cost effective to obtain a certificate of coverage for individuals moving into Finland, thereby avoiding Finnish contributions.

Individuals assigned into Finland from non-agreement countries are not subject to pension insurance contributions for assignments of up to two years. If the posting lasts for more than two years, the Finnish Centre for Pensions can exempt, upon application, the foreign employer from the obligation to take out insurance under the Employees Pensions Act for a maximum of five years. 

Exemptions

If the employee's salary is taxed under the foreign expert tax regime, the sickness insurance premium (around 2%) is included in the flat 32% tax rate.

Administration

Residence-based social security benefits are administered by the Social Insurance Institution (Kansaneläkelaitos, or Kela), an autonomous public body under the direct supervision of the Finnish Parliament. Healthcare services are the responsibility of the local authorities. The earnings-related pension insurance for private sector employees is handled by specially authorised pension insurance companies, pension funds and pension foundations. All contributions are managed through payroll withholding, which takes place monthly.

Benefits

The earnings related pension accrues at a rate of 1.5% per year of annual gross earnings from the age of 17, and the actual payments are calculated the accrued savings and a life expectancy coefficient . The retirement age is generally 65.

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