Pension funding 

Pension funding is based on pension contributions and investment returns.

In 2017, pension contributions received by Keva were, for the first time, lower than the pensions paid out. This gap will widen rapidly in the coming years. As a result, under the system governed by the Keva Act, an increasing share of pension expenditure will need to be financed by investment returns and, in the future, also by drawing on capital.

According to funding projections, over the next ten years, the fund’s assets and returns will be drawn on at approximately EUR 1.3 billion per year on average at current prices, amounting to a total of around EUR 13 billion. The use of fund assets for financing pensions is expected to accelerate in the 2050s. By the 2080s, approximately one-third of pension expenditure will be financed from the fund. Ensuring the liquidity of the pension system requires that investment activities, in addition to managing market volatility, are prepared for various risks, including those related to the funding base. 

The level of pension contributions is determined by the obligations of a defined benefit pension system and must remain sustainable across generations. The assets and expected contribution income of the pension system must be balanced against projected pension expenditure.  Contribution levels are stabilised by using the fund more during periods when pension expenditure peaks.

The pension financing requirement of Keva’s member organisations is higher than in the private sector earnings-related pension system (TyEL).  This is due, among other factors, to the more generous pension benefits accrued before 1995, the predominance of women in the municipal sector, an older age structure, and longer life expectancy.

The earnings-based pension contribution collected from Keva’s member organisations at the TyEL level accounts for most of Keva’s contribution income. All employees pay a share of their salary in line with the contribution rates in the private sector. Employers pay an earnings-based pension contribution calculated on wages paid, which includes an employer-specific disability pension component. 

The portion exceeding the TyEL level is collected from municipalities and wellbeing services counties as a balancing contribution. The balancing contribution is not levied on wages but is based on the tax-funded income of the municipality or wellbeing services county. More detailed information on earnings-based pension contributions and the balancing contribution is available here: Information on pension contributions – Keva