Fertility Decline and the Future of Finland’s Pension System: A Stochastic Scenario Analysis

Tuija Nopola , Finnish Centre for Pensions

This report evaluates the long-term sustainability of Finland’s earnings-related pension system amid declining fertility rates. Since the early 2010s, Finland has seen a sharp drop in its total fertility rate (TFR), reaching a historic low of 1.26 in 2023. Given that the pension system operates on a pay-as-you-go basis—where current workers fund the pensions of retirees—this demographic trend poses signifi-cant challenges for future financing. To explore the implications, the report presents two demographic scenarios. Scenario P assumes a per-sistently low fertility rate, while Scenario L anticipates a partial recovery due to delayed childbearing. Using stochastic simulations with 5,000 iterations per scenario, the study projects earnings-related pen-sion (TyEL) contribution rates through 2090. Under Scenario P, contribution rates are expected to rise to between 24.9% and 26.4% of the wage sum (with 90% confidence). Scenario L offers slightly more optimistic projections, with contribution rates approximately 0.5 percentage points lower. These projections incorporate assumptions about emplo-yment, migration, mortality, inflation, and investment returns, aligned with national forecasts and his-torical data. The findings emphasize the pivotal role of fertility in determining the financial sustainability of the pen-sion system. A continued decline in birth rates would significantly increase the burden on future wor-kers, while even a modest fertility rebound could alleviate some of this pressure. The report highlights the necessity of accurate demographic forecasting and adaptive policy responses. It also identifies the level of net immigration required in each scenario to maintain current pension contribution rates.

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 Presented in Session P8. Demographic Trends, History, Data and Methods