Overall assessment of the effects of ageing and the adequacy of preparation for demographic changes Prime Minister's Office Publications 4/2009
The ageing report reviews developments in the ageing of the population, the effects of ageing and Finland’s ageing policy, on which basis it assesses the adequacy of the preparations for this, and the need for new policy measures. In addition to the established fiscal sustainability, social and political sustainability form the perspective of this assessment.
In recent years, ageing-related developments have been positive in many respects. Regardless of this, the public finances will not be returned to a sustainable basis without new policy measures. The sustainability gap may not be extraordinarily large, but its assessment is subject to considerable uncertainty. Unfortunatately, the current economic crisis has greatly increased the probability of a very large gap. In terms of social sustainability, problems include both the low level of the smallest pensions, and the varying, partly deficient availability of nursing and care services. No major conflicts are evident between generations, but it is possible that such conflicts may arise if problems related to fiscal and social sustainability cannot be remedied in a balanced manner.
The best policy response is seen as involving a reduction in the sustainability gap of public finances through measures promoting the rise of the employment rate, enhancing the efficiency of public service provision and improving the health and functional ability of citizens. Health promotion is the key in terms both of curbing the rise in the employment rate and care expenses caused by illnesses. Improving health will create promising prerequisites for a considerable rise in the employment rate, particularly as concerns senior citizens.
A higher employment rate will require distinctly longer working lives, which will in turn require both solid general labour demand for and greater incentives for employees to remain in the labour market. The attractiveness of early retirement options must be reduced. Tax subsidies for pension saving should be reformed so as to not to motivate workers towards early retirement. In time, the retirement age for the old-age pension should also be raised.
The potential for enhancing the efficiency of public service provision is remarkable, merely through the adoption of best practices. Furthermore, efficiency often goes hand in hand with high quality.
If successful, various structural measures should prove capable of substantially alleviating the threats and restrictions presented by fiscal sustainability to welfare promises concerning pensions and services. Sound policy will facilitate attending to these promises, while partly even improving safety nets, without raising the overall tax ratio.
