Established in 1990, the State Pension Fund of Finland (VER) is tasked to manage and invest the pension assets entrusted to it. Through the Fund, the state prepares to pay for future pensions and contribute to balancing the foreseen deficit in pension financing.

VER exists for the purpose of paying out state pensions and balance state pension expenditure. It builds up reserves to balance the heavy costs of baby-boomers’ pensions in the years when the expenditure peaks through a partial and controlled dissolution of the Fund.

VER’s operation is set in the Act on the State Pension Fund (1297/2006). Essential statutes for VER are also the new Public Sector Pension Act (HE 16/2015) and the Act of Financing the State Pension Scheme (HE 21/2015), which was implemented in the beginning of 2017.

VER is an important actor in society. It is part of the state’s partially prefunded pension system, and when established it was modelled on the private employment system (TyEL) and the Local Government Pension Institution Keva. The guiding principle of pre-funding is to allocate the burden of cost to the right generation. In Finland, only a certain percentage of the cost of pensions is pre-funded through collective funds.

In 2021, the Finnish state pension system covered around 131,000 people. The state’s pension expenditure was a little over EUR 4.8 billion. There were around 435,000 pensioners in the state pension scheme.

After a pension reform in 2005, state pension cover has been on a par with the local government and private sectors. The reform also introduced a career model for state pensions, where pensions are calculated on the basis of annual earnings and a growth percentage.

Also after the forthcoming pension reform coming into force in early 2017, the state pension scheme equals the private sector and the municipal sector pension schemes. In this reform the lowest retirement age will be gradually increased and in the future it will be adjusted to the change in life expectancy. New pension forms include the partial early retirement pension and the career pension. The previous part-time pension will be removed. The rules on the accumulation of pension are also renewed.

The new reform also affects the financing of the state pension system. In the long run the pension expenditure is expected to diminish due to the reform.

Operating policy

The State Pension Fund earns its income from pension insurance premiums, other payments and returns on investments. Premiums are paid by the employers and employees covered by the state pension system. However, instead of paying out pensions directly, VER only invests the accumulated assets. As a so-called buffer fund, VER - unlike private (TyEL) pension companies - does not have any pension liabilities to cover individually. Therefore, VER is not subject to regulations governing solvency.

Responsibility for actual pension payments and the execution of the state pension scheme was reassigned from the State Treasury to the Local Government Pension Institution Keva in 2011, which has since then served as the state pension institute. Additionally, employer services were taken over by Keva as of the beginning of 2013. VER pays expenses to Keva for managing those tasks.

The pensions to be paid out by the state are included in the government budget to which VER transfers an amount equivalent to 40 per cent of the annual pension expenditure as provided in the State Pension Act (VaEL). Funds that are not transferred remain in the Fund. According to the emergency law for year 2015, the State Pension Fund transferred extra 500 million euros to the government budget.

EN Q4 2021 18

Extensive pension liability of the state

Pension liability refers to the sum of money (assuming future investment returns), calculated at a certain point in time, which would cover the future cost of pensions earned by the time of calculation. The liability includes also all paid-up pensions otherwise pensions deriving from finished state employment contracts. Pension liability always includes an assumption regarding return on investment. The state’s pension liability indicates the total cost, at the time of calculation, of the pensions promised by the state to its current and previous employees.

In addition to expected returns, the liability calculation includes other assumptions related, for instance, to changes in life expectancy and retirement age, and to how many people are expected to take disability pensions in the future. In calculating pension liability, it is essential to know the accurate sum of pensions accrued by the time of calculation. Because the employed population accumulates a pension each year, new people retire, and people entitled to receive pensions pass away, the pension liability sum is not constant but is recalculated annually.

The pension liability figure consists of provisions for earned and unearned premiums. Earned premiums refers to the amounts to be paid to people who have already retired – i.e., the capital value of old-age, family, disability, unemployment, and part-time pensions that have already started being paid out. Unearned premiums refers to the capital value of pensions accrued by the time of calculation that have not yet begun to be paid out.

million € 2020 2021
Pension contributions 1,509 1,550
- of which employees´ share 471 484
Transfer to state budget  1,931 1,941
Net pension contribution  -423 -391

Within the state pension scheme 2020 2021
Insured  approx. 129,000 approx. 131,000
Pensioners approx. 433 000 approx. 435,000
Pension liability  93.1 billion € 93.3 billion €
Funding rate  23% 25%
Investment portfolio 21.0 billion € 23.6 billion €
Return on investment portfolio 4.0% 14.6%

Net premium income turned negative

Year 2013 VER’s net premium income (pension premium income less the amount transferred to the state) turned negative. Consequently, VER contributes to the government budget more than it receives by way of premium income. Over the next few years, the negative net premium income will increase to the extent that VER will be called upon to even out the state’s pension expenditure with substantial amounts at or about the year 2030 when it is estimated to peak.

EN Q4 2021 16

The increase in pension expenditure will continue to grow even beyond 2030, albeit at a slower rate. It is estimated it will not turn positive until the late 2040s.

In 2020 the proportion of pension expenditure in the payroll was around 79 per cent. It is expected to peak in 2034 at around 88 per cent. After this, it is predicted to slowly fall until the mid-2050s.

The number of employees covered by the state pension scheme (VaEL) is expected to fall steadily by the mid-2040s. The reduction of personnel impacts the development of both pension income and pension expenditure.

The reduction in personnel covered by the scheme is a major consequence of privatisations and legislative changes. Part of these arrangements include long term transfer period arrangements, which cause  gradual removal of primary, secondary and tertiary education teachers from the scheme into private pension schemes.

According to the State Pension Fund Act, VER’s target funding ratio is 25 per cent of the state’s pension liabilities. After the target is reached, the usage of funds is set individually. The predicted achievement of 25 per cent target funding ratio is constantly changing, depending on the development and expectations towards the net premium income and financial markets.


The Ministry of Finance has set a target return that the State Pension Fund is to generate a higher rate of return than an alternative investment considered risk-free from the state’s point of view, in other words the cost of the net government debt.

EN Q4 2021 7