Finland’s pension chief warns against cuts, says tax adjustments are better

The head of Finland’s Pensions Security Centre (ETK) has cautioned against weakening the pension system, arguing that any necessary savings should come from tax adjustments rather than direct cuts. In an interview with national broadcaster Yle, ETK Director General Mikko Kautto stressed that the current system remains in “reasonably good shape” despite growing political pressure to reduce public spending.

Finland’s next government faces a target of 8–11 billion euros in fiscal adjustments, and the country’s 40-billion-euro annual pension pot has become an attractive target for cuts. Kautto, whose agency provides data and calculations to support pension policy decisions, urged political parties to clarify their goals before the 2025 parliamentary elections.

“What do they think about that 8–11 billion adjustment package? What would their adjustment measures be? Is pension security part of that, and if so, how big a part?” Kautto asked, calling for more precise proposals.

He acknowledged that if immediate savings are needed, adjusting the pension index—lowering the rate at which pensions are uprated—would be the fastest solution. A one-percentage-point reduction in the index could save 1–1.1 billion euros over four years, according to 2023 estimates by the Ministry of Finance. However, Kautto noted that such a move would primarily reduce payments from private-sector pension providers, not directly benefit state finances unless paired with tax changes.

Longer-term savings could come from reducing pension accrual during unpaid periods, such as education or parental leave. For example, Finland currently grants a roughly 67-euro monthly pension increase for completing a higher university degree—a benefit Kautto suggested could be reconsidered.

Yet he made clear that no proposed cuts have won his support. “After decades of work, we’re in a situation where the system is functioning well. There’s naturally hesitation about deliberately setting out to weaken it,” he said.

Kautto, 61, who studied how Finland’s welfare state survived 1990s austerity in his doctoral thesis, now leads the ETK at a time when historic cuts are again under discussion. While politicians increasingly debate whether pensioners should contribute to debt reduction, he warned that any reduction in pension spending would inevitably lower benefit levels or raise the retirement age.

The ETK’s legal mandate is to provide data for pension decisions, giving its director general significant influence. Though Kautto avoided taking a direct stance on political proposals, his skepticism was evident. “It’s understandable that public finances are looking at the pension system,” he said, “but we must ask what the real objectives are.”