Country Panel Presentation: Finland...Country Panel Presentation: Finland 2016 IGP Regional EMEA Seminar Windsor, May 24 -26, 2016 . Riitta Jokelainen Ac, count Executive . Mandatum

© International Group Program

Country Panel Presentation: Finland

2016 IGP Regional EMEA Seminar Windsor, May 24-26, 2016

Riitta Jokelainen, Account Executive Mandatum Life

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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.


Agenda

• Country Information - Finland

• Company Information – Mandatum Life

• Summary of Social Security Benefits

• Customary Private Employee Benefits

• Taxation

• Administration

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Key Topics

Background Information

Social Security

Private Practice

Taxation Administration Legislation

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Country and Company Info &

Background


The Finnish Economy

• Inhabitants 5.47 million

• GDP per capita EUR 37 819 (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

• Rated AA+, S&P

Source: Statistics Finland, April 2016

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)

Source: Forbes, April 2014

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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

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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 Wealth management • Basic salary and bonus systems • Rewarding of management and

employees • Supplementary pension

• Risk policies • Personnel funds

• International services

• Wealth management • Portfolio management service

• Investment baskets • Savings

• Tax consultation

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Mandatum Life Facts and figures 2015

Premiums: 1 144 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

Corporate CustomersTotal Market Share

Group PensionGroup Pension,

unit linked Corporate,risk

43.5%

59.2%

30%

40.7%

19.2%

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Key Topics


Social Security

Private Practice


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Summary of Social Security

Benefits


Structure of Insurance Companies

Life Insurance Company

(Mandatum Life)

Non-life

Insurance Company

(If P&C)

Supplementary life and pension

2nd pillar

Mandatory occupational accident and

group life 1st pillar

Pension

Insurance Company

(Varma Pension)

Mandatory

employment pension TyEL

1st pillar

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Social Security Schemes in Finland

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

3rd pillar Other (private) 3)

Sickness and Maternity

2nd pillar Supplementary / Occupational Pension 3)

1st pillar

Medical Care

Sickness and Maternity Insurance

Public Health and Hospitals

Sickness Insurance Reimburse- ments

Basic National Pensions

Employ- ment

Pension TyEL 1)

Basic Amounts

Based on

Income

Medical Care

Pension Insurance

Unemployment Benefits

Child Benefit, Maternity Grant, Child Home Care Main- tenance

Social Allowances, Social Services

Family Benefits Occupational Accident

and Diseases Insurance

+ Group Life 2)

Sickness and Maternity Daily Allow- ances

Occupational Health Care 4)

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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 30.9.2015 11


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.



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



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

* Employee over the age of 53

TOTAL COSTS: Employer 25.33% Employee 8.95% / 10.45%*



• 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

Employment Pension TyEL 1st Pillar Mandatory Pension



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 63 4.5% between ages 63 to 68

• Life expectancy coefficient decreases the pension from 2010



Key Topics


Social Security

Private Practice


Mandatory TyEL Pension

Reform in 2017

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Pension Reform 2017 in a Nutshell

Retirement age raises from 63 years to 65 years and more

• 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.

Retirement age and life expectancy coefficient are linked

• 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)

Pension accrual rates are harmonized

• A partial early old age retirement

New channels to retirement



Retirement Age Raises Gradually Year of birth Retirement age Target retirement age

1950-1953 63 y 63 y

1954 63 y 63 y 10 m

1955 63 y 3 m 64 y 2 m

1956 63 y 6 m 64 y 7 m

1957 63 y 9 m 65 y

1958 64 y 65 y 4 m

1959 64 y 3 m 65 y 9 m

1960 64 y 6 m 66 y 1 m

1961 64 y 9 m 66 y 6 m

1962 65 y 66 y 11 m

1963 65 y 67 y

1964 65 y 67 y 2 m

1965 65 y 2 m 67 y 4 m

1966 65 y 4 m 67 y 6 m

1967 65 y 6 m 67 y 8 m

1968 65 y 8 m 67 y 10 m

1969 65 y 9 m 68 y

1970 65 y 11 m 68 y 2 m

1975 66 y 6 m 69 y

1980 66 y 11 m 69 y 8 m

1985 67 y 5 m 70 y 4 m

1990 67 y 9 m 70 y 11 m

1995 68 y 1 m 71 y 5 m

2000 68 y 3 m 71 y 11 m



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?


Salary

Mandatory TyEL pension

Reduction in total pension level

63 y 65 y

Supplementary pension

Increase in retirement age

Pension reform in 2017 will increase the mandatory pension’s retirement ages.

Supplementary pension

retirement age 60 y

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Key Topics


Social Security

Private Practice


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Customary Private Employee Benefits:

Type & Level of Benefits / Survey

Data / Plan Design / Benchmarking /

Trends


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



Typical Supplementary Benefits

Pension: Risk benefits:

Management

Key employees

Employees

• Group pension DC • Retirement age 60 to 63 years • Contribution 10 to 20% of salary

Group life and disability: 2 to 3 x annual salary 1 x annual salary 1 x annual salary

Medical insurance for all employees

• Group pension DC • Retirement age 63 to 65

years • Contribution 2 to 4%

of salary

• Group pension DC • Retirement age 60 to 65 years • Contribution 5 to 10% of salary



Cash vs. Investment in Pension Insurance

4 500 e

5 500 e

3 000 e

Profit-related cash benefit

Investment in pension insurance

13 000 e 13 000 e

Company’s social contributions

Taxes (55 %)

Cash in hand after tax

4 500 e cash in hand

3 000 e

10 000 e 13 000 e invested in the future and taxable when retired



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)



Key Topics


Social Security

Private Practice


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Taxation of benefits (e.g. lump

sum versus pensions) /

Tax treatment of ER and EE

contributions


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.



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).



Key Topics


Social Security

Private Practice


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Legal requirements re. administration of

benefit plans: actuarial valuations / communications / involvement of

unions/employees


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)



mandatumlife.com

Contact Info

Mrs. Riitta Jokelainen Mandatum Life

+358 50 426 7492 [email protected]

P.O. Box 627, FI-00101 Helsinki Bulevardi 56, Helsinki Finland

Documents

Country Panel Presentation: Finland...Country Panel Presentation: Finland 2016 IGP Regional EMEA Seminar Windsor, May 24 -26, 2016 . Riitta Jokelainen Ac, count Executive . Mandatum