The Impact of Migration on Finnish Pension System Sustainability: Scenario Calculations

The Impact of Migration on Finnish Pension System Sustainability: Scenario Calculations

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The Finnish population is ageing rapidly. The bulk of pensions currently in payment are paid for by people in employment. If population trends continue at the current rate, there is a pressure to increase the pension contribution rate. A young age structure of migrants to Finland and considerably high birth rates of some migrant groups reduce the old-age dependency ratio. A younger age structure lowers the ratio of pension expenditure and pension contributions to wages. The magnitude of the effect depends on migrants’ and their descendants’ employment rates. This study uses scenario calculations to assess the impact of migration on pension expenditure and pension contributions. Migrants are classified into three groups based on their birth country: high, medium and low employment outcome. Based on historical data, it is assumed that the length of time spent in the country correlates positively with employment outcome. Second-generation immigrants are also assumed to have a better employment outcome than their parents. An increase in net immigration will ease the upward pressure on pension contribution rates the more the larger the share of additional immigration from high employment outcome groups. In the longer term the effect will be less dependent on the immigrant group.

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