Jan Kunz, University of Tampere, jan.kunz@uta.fi

Abstract

This study reviews the problems and opportunities connected to population ageing in Finland. In the focus are particularly issues related to the social security system, the labour market and the economy in general. The results indicate that population ageing is a medal with two sides. Currently the public focus is primarily on negative aspects related to the socio-demographic development, such as increasing spending for pensions, potential labour shortages, as well as problems in the field of social and health care. Yet population ageing also offers opportunities, for example, in the shape of a ‘silver economy’ and voluntary work on behalf of retirees. Both aspects have been largely neglected in Finland so far. Compared to the other Nordic countries, Finland finds itself in a more difficult position concerning the impact of population ageing. Attitude changes and active policies are essential to cope with the rapidly increasing number of elder people in society and its effects.

Introduction

The Member States of the European Union (EU) are facing essential socio-demographic changes: on one hand, fertility rates have fallen from 2.7 children per women in the mid 1960s to less than 1.5 children in 2002, which is far below the replacement level of 2.1 children. On the other hand, the life expectancy for women increased by more than 8.5 years and for men by 7.7 years in the same period of time (Eurostat 2004: 20-21). As a result of these trends, European societies are currently ageing and additionally shrinking in the medium-term[1] (see European Commission 2005).

This development will affect almost every aspect of our lives, for example the way businesses operate and work is being organised, our urban planning, the design of flats, public transport, voting behaviour and the infrastructure of shopping possibilities in our cities. (Špidla 2005: web document)[2]

The study at hand takes a close look at the phenomenon of population ageing. In the focus are particularly the effects for labour markets, social security systems and the economy in general. The objective is to determine whether population ageing is actually the problem it is said to be (‘pension bomb’, ‘welfare collapse’, ‘generation clashes’, ‘labour shortages’, etc.) or if it should be re-evaluated and understood more in terms of opportunities for society and the economy (‘silver economy’, ‘time for voluntary work’, ‘lower unemployment rates’, etc.).

The Finnish case is very interesting to study with regard to population ageing, which is why the country is the focus of this study. First of all, Finland is seen as a front runner in the European Union as far as new ageing policies are concerned. This is directly connected to the fact that the country has the fastest ageing society as far as the EU-15 is concerned.[3] In addition, it is the only EU Member State which applied an integrated policy approach to population ageing and it is also the only one where age discrimination in working life is prohibited by law (Committee of the Regions 2003). Besides data and studies concerning Finland, the article also falls back upon some research projects carried out in other EU countries – primarily Germany – and comparative statistics compiled by international organisations.

Chapter 1 reviews early retirement schemes, which were once considered a remedy for high unemployment and in the end turned out to be a plague for public budgets and pension funds. Concurrently the need for pension reforms is discussed. Against this background Chapter 2 analyses the financial impact of population ageing with regard to social expenditures. The risk of labour shortages is the topic of Chapter 3. In order to allow for a careful and balanced consideration, Chapter 4 concentrates on the socio-economic potential of population ageing, while Chapter 5 compares the situation in Finland with the situation in the other Nordic countries. The key findings of this study and some policy recommendations can be found in the conclusion. 

1. The plague of early retirement and the need for pension reforms

On average, Europeans retire before they reach their 61^st birthday, which is significantly below the statutory retirement age in most countries. In the Finnish case, the official retirement age used to be 65 until 2004[4], yet the actual retirement age dropped from 61.4 in 2001 to 60.3 in 2003 (Eurostat 2005: web document). This development is partly due to the increasing demands of working life and large differences concerning the skills of younger and older members of the Finnish labour force (Sosiaali- ja terveysministeriö 2002). Another factor is the (mis)use of early retirement to smoothen the effects economic restructuring. According to Tryggvi Herbertsson and Michael Orszag (2003: 10) the economic consequences are a loss of output, higher benefit payments and a lower tax base. They estimate that the costs related to early retirement in Finland will be nearly twice as high in 2010 compared to 1980.

Against the background of the expected population ageing in the EU and most of its Member States (see Eurostat 2004, 2003; Auer and Fortuny 2000) it is therefore obvious that the actual retirement age must be raised substantially, otherwise there is the danger of collapsing social security systems and potential labour, skill and knowledge shortages (see Herbertsson and Orszag 2003; Börsch-Supan 2001). In order to improve the situation, the European Union set itself the target to increase the employment rate of older workers to 50 percent by the year 2010.[5] However, currently it seems unlikely that the EU will meet this ambitious goal. Furthermore, it is not even sure if an employment rate of 50 percent for older workers will be sufficient to avert a collapse of the pension systems. This is one reason why the topic of population ageing is still on the political agenda. In 2005, for example, the European Commission (2005) drafted a green paper on Confronting demographic change: a new solidarity between the generations in order to spark new debates.

The discrepancy between the economic imperative of a longer working life and the preferences of employees (often promoted or enforced by the employers) is partly due to poor policies during the 1980s and 1990s. As a reaction to the increasing mass unemployment, many EU Member States introduced early retirement schemes to improve the labour market situation. In the year 2000, there were altogether six schemes in place in Finland which allowed an early exit from the labour market (disability pensions, individual early retirement pensions, unemployment pensions, extension of unemployment benefits for people between 55 and 59 years, early old-age pensions and part time pensions) (see Antolin et al. 2001).

Although the effects of early retirement were presented a long time as a win-win situation (availability of jobs for the young; more leisure time for elder people; lower unemployment figures for the government), they turned out to be an expensive fallacy. The employers used the schemes as a means to get rid of older workers at the expense of the public, while individual employees saw them as opportunity to get out of the labour market at a comparatively early age without serious financial penalties (see Herbertsson and Orszag 2003). Throughout Europe, the implementation of the schemes decreased the actual retirement age. Furthermore, they strengthened people’s belief that it is justified to retire early. This kind of attitude endangers the pension scheme and the idea of the ‘generation contract’ as such (people in the working age provide for those who are retired).[6] ‘From the insurance point of view it is [thus] highly questionable that pension assets are to be directed to healthy people, who are fit to work, shifting over from employment to retirement before the general retirement age.’ (Lindell 1998: 14)

Besides the direct financial burden for the pension system caused by early retirement schemes, the underlying ideology (‘older people in the labour market are superfluous and prevent young people from getting jobs’) may be even more devastating in the long-run. After early retirement has been promoted over decades, it is difficult to get new messages across (‘due to demographic changes people need to work longer in life’ and ‘older employees are a valuable asset for companies’). Hence it is no surprise that a recent study by the Institute for Applied Economic Research (2004) on the situation of older workers in the federal state of Baden-Württemberg in Germany came to the result that both firms and workers themselves favour a retirement age noticeably below 65 years.

After the Finnish government realised the negative effects of the early retirement schemes and the increasing problems connected to population ageing, a substantial pension reform was decided in 2002 which came into force in 2005. Among others the official retirement age of 65 years was abolished and replaced by a more flexible approach. It allows people to retire at the age of 63 but concurrently offers strong financial incentives to continue working until the age of 68. At the same time the reform reduced the possibilities for early retirement and increased the responsibilities of employers for older workers (see Finnish Centre for Pensions 2004).[7]

It can be assumed that the measures and changes related to the ‘largest [pension] reform ever’ (Finnish Centre for Pensions 2004: web document) have a decisive influence on the actual retirement age in Finland and the pension expenditure in the future. According to Janne Pelkonen and Eila Tuominen (2004: 5), the tightened rules for early retirement will lead to longer working careers of people aged 60 to 62 who would have retired otherwise. However, it remains to be seen how many people will stay in work beyond the age of 63. The efficiency of financial incentives for those who work until they are 68 will be determined by the labour market and the behaviour of elder people. A basic precondition in this context is the availability of jobs and the creation of working environments where people feel comfortable and have interesting and challenging tasks. From the societal point of view there is a risk that the 2005 pension reform has a negative effect on the equality between people working in different sectors of the Finnish economy. It is conceivable, for example, that white-collar workers profit more from the reform than blue-collar workers. One reason for this is the fact that from 2005 onwards pension rights also accrue from study periods, which favours people with a higher education, although the compensation is comparatively low. In addition blue-collar workers may simply not be able to work longer than the age of 60 or 63 as they have performed hard physical labour throughout their life.[8] White-collar workers, on the other hand, may enjoy their office jobs until they are 68 and benefit from the new financial bonuses (an increase in accrued pension rights). Another scenario is that due to own retirement arrangements white-collar workers may have gained enough financial security by the age of 62 or 63 already, so that they have no economical need to continue working. This could lead to the paradox situation that white-collar workers who are physically in a good shape are retiring early, while blue-collar workers who would need a better pension are physically not able to stay longer in their jobs (Ketola and Kunz 2005).

The introduction of a life-expectancy coefficient concerning the starting amount of pensions from 2009 onwards is reasonable from the perspective of public budgets. Yet, for individuals it means more responsibility for their own retirement arrangements (e.g. in the shape of private pension insurance) or a prolongation of the working career as intended by the pension reform. In this context the question needs to be addressed, which groups of society have the financial means to do so and which are able to work beyond the age of 62 (Ketola and Kunz 2005).

2. The impact of population ageing on public budgets and the welfare state

High unemployment and early retirement in combination with an increasing life-expectancy and low birth rates are a threat for social security systems as they increase expenditures and reduce tax revenues. This undermines the financial basis of the welfare state.[9] In order to ensure the functioning of social security systems in the long run and to promote economic growth, it is important to use existing resources more effectively. This means increasing the employment rate through a reduction of unemployment and the mobilisation of hidden resources (people in working age who are not available for the labour market), as well as the fostering of participation and employment rates of elder people.

The total expenditure relating to the elderly in Finland amounted to approximately 11 billion Euro in 2001. The share of pensions and other income transfers made up 90 percent while the remaining 10 percent was spent on social services (Sosiaali- ja terveysministeriö 2003: 37-8). With regard to the financial development in the future, researchers seem to have little doubt about a negative effect of the population ageing. According to calculations by the Commission for the Evaluation of the Development of Social Expenditure, for example, the social expenditure share of the GDP in Finland is going to increase from 25 percent in 2001 to 30 percent in 2030 (Sosiaali- ja terveysministeriö 2002: 200-1).[10] The reason is first and foremost the increasing financial burden in the pension field from 2010 onwards. In addition, the commission expects higher expenditure on social and health care in the 2020s and 2030s due to the increasing number of elder people in the country.

A similar prediction is made by Jukka Lassila and Tarmo Valkonen (2002) who took people’s education level and their expectations concerning the standard of social services into account. The high education level in Finland is generally considered a competitive advantage, which has positive effects on growth and welfare in the country. With regard to the ageing population, however, this can become a problem, as pensions are largely earnings-related. Well educated people usually earn more than low educated ones; hence, if their share among the retirees is increasing, the amount of money spent on pensions will also go up.

In the report Seniori-Suomi, the Finnish National Fund for Research and Development (Sitra 2003) made three different projections concerning the development of pension expenditures. Scenario one assumes that the productivity per employee is increasing by 2 percent per year while the employment rates of the different age cohorts remain at the level of 1990. Against this background the share of the pension expenditure on the GDP would increase from 11 percent in 2001 to 15 percent by 2030 and decrease to 14 percent by 2050. In the second scenario, which is based on higher economic growth than the first scenario, the pension expenditure would increase only by one percent and then come down to the current level in 2050. Scenario three is calculated on the assumption of lower economic growth. In this case, the pension expenditure would reach its peak in the late 2030s with 18.5 percent and remain above the 18 percent level until 2050 (Sitra 2003: 18-23).[11]

Higher spending due to population ageing is also expected in the field of social and health care. However, the effects seem to be frequently overrated, especially with regard to the health care sector (see Spiegel Online 2003). According to a statistic comparison by the Organisation for Economic Co-operation and Development (OECD 2003: web document), there is no causal connection between the share of elder people and the spending in the field of health care. However, a purely quantitative comparison may not comprehend qualitative differences. Other research projects indicate that with regard to the development of health care costs, a number of additional factors need to be taken into account (see Sitra 2003: 23). The need for home help services, for example, is not only influenced by the age structure of a society, but also by the health status and the agility of people, the accessibility and quality of services and institutions, as well as the care arrangements (who is looking after elder people in case they need help: the state, the family or others).

Some local experiences from Finland underline the fact that population ageing does not automatically lead to higher spending in the social and health care field. In the municipalities of Savitaipale and Sulkava, for example, the total amount of elder people in 2002 was already as high as it will be in the whole country by 2030. Nevertheless, there has been no increase in social expenditure. Instead, a reallocation of the local budgets could be observed: the spending in the field of elderly care increased between 5 and 8 percent, while the social expenditure on children and juveniles decreased by 5 percent (due to lower birth rates and the decreasing need for day care and education) (Nivalainen and Volk 2002: 31-43). Yet, generalisations are difficult as the quality of services needs to be considered as well. Much depends also on the local economic development, fertility rates, care arrangements and people’s health status. Still, the examples underline the fact that the old-age dependency ratio alone is not sufficient to make predictions concerning the financing and the arrangement of social and health care services at the regional level.

Assuming elder people are using as many services in the future as in 2004 and the productivity in the social and health care sector remains unchanged, population ageing will inevitably lead to a significant increase in total spending. If, on the other hand, economic growth is high and the development of prices in the social and health care sector is moderate, the increase in spending (as share of the GDP) will be more moderate. A good health status of elder people can have a positive influence on public budgets in this context; hence, an increase of preventative measures may pay off in the long-run. The costs for medical technology and medicine, as well as the spending on wages and salaries, on the other hand, increase the financial burden. Another factor which should not be underestimated is the growing wealth and the higher education level of future retirees which may lead to increasing demands for high quality services. As the local level is responsible for social and health care services in Finland, these trends and developments are a challenge for municipalities and regions (Sitra 2003: 80-1). According to Lassila and Valkonen (2002) the current level of social and health care can only be guaranteed if the demographic development is stable and the economic performance is not decreasing. However, both factors are uncertain and the crucial question in this context is whether the current standard of health care is sufficient for a rapidly ageing society.

Lassila and Valkonen (2002) conclude that the public sector did not adequately prepare for the financial consequences of population ageing in Finland. In order to keep the social expenditure under control, they propose a reduction of public debts (which has partly been achieved), as well as the establishment of pension and health care funds. However, there will not be much time left before the spending will start to increase and the possibilities to acquire additional assets through savings are limited. The above mentioned pension reform is an important measure in this context. It was designed to get the spending on pensions under control and maintain the scope of the Finnish social policy. Yet, there are a number of uncertainties related to the calculation of social expenditure in the future. While the amount of pensioners can be estimated relatively accurately for the next two decades, future birth rates, economic trends or fiscal developments are difficult to predict. If the productivity and the efficiency of the social security system cannot be improved (through cost cutting, the reduction of benefits, the reorganisation of work, etc.), an increase of taxes may be inevitable although the trend has been to lower taxes in recent years (see Ketola and Kunz 2005).[12] The alternative would be further cuts in welfare.

3. Is there a risk of labour shortages?

There are different theories with regard to the impact of population ageing on the demand and supply of labour. The majority of researchers and professional experts predict labour shortages up to levels which harm the economy (see European Commission 2005; Börsch-Supan 2001). In the case of Finland, they are not only a result of population ageing but also related to early retirement and the mismatch of skills and demands at the labour market (manifested in persistent mass unemployment). Another factor is the late entry of students into the labour market, which shortens the working career right from the start (see Parkkinen 1999: 340-1).  

At the beginning of the decade, the discussion was picked up by the Finnish media: ‘Labour shortages now more worrisome than unemployment’ (Helsingin Sanonmat International Edition 2000a) or ‘Finland faces labour shortage in all sectors in 2005’ (Helsingin Sanonmat International Edition 2000b) were some of the headlines of the time. Five years later, the predictions seem to have come true. Due to retirements 20,000 workers are lacking in the metal sector by 2007, for example. Finnish recruiting companies have started to open branch offices in the Baltic States and Poland in order to hire skilled people and fill the vacancies (Helsingin Sanonmat International Edition 2005a). Similar trends can be witnessed in the health care sector, where many doctors and nurses are reaching the retirement age themselves. This development is aggravated by the fact that Finnish health care personnel have good job opportunities with attractive salaries abroad. As a result some regions and institutions such as public hospitals are having difficulties to employ enough nurses and doctors (see Helsingin Sanonmat International Edition 2005b; Helsingin Sanomat 2004). With regard to the Finnish labour market in general, the Ministry of Labour comes to the following conclusion:

From 2010 on, the working-age population will start to decrease. By 2030 it will have decreased by about 400.000 people, which is equivalent to a decrease of about 20.000 people a year. The decrease will be fastest in the 2010s reaching the rate of 30.000 people a year at its highest. The changes in the working-age population will be so large and so sudden that they will have a crucial impact on the entire functioning of the labour market. (Ministry of Labour 2003: 2)

However, even if the labour force is shrinking in the future, this does not automatically lead to labour shortages. Many industrialised counties, among them Finland, have experienced the phenomenon of ‘jobless growth’ after the recession in the 1990s. While the economy gained pace, the number of jobs grew only modestly or even declined in some sectors due to the replacement of human labour by machines and new technologies. A further increase in productivity and the concurrent transfer of jobs to low wage countries may reduce the demand for labour and could even lead to a stabilisation of the unemployment rate at present levels.[13]

Which of these two scenarios (labour shortage versus jobless growth) will materialise depends among others on international developments such as the world economy, the global supply of and demand for resources, as well as migration trends. It is also possible, that a combination of both scenarios will emerge with labour shortages only in certain sectors and/or certain regions while the situation in other sectors and/or regions remains unchanged or is even characterised by a surplus of labour. Some of these tendencies can be witnessed in Finland already (see Ketola and Kunz 2005).

If the predictions of the Ministry of Labour (2003: 10) about a labour shortage of 10,000 to 15,000 people per year from 2010 onwards hold true, it is important to prepare policies which allow the country to cope with the situation. An increase in the actual retirement age, an early entry of young people into working life and the hiring of skilled labour from abroad are fields which need to be addressed. Finland has taken steps in this direction (see Ketola and Kunz 2005; Piekkola 2004); yet, it remains to be seen if they are sufficient. Furthermore, it is essential to mobilise the silent labour market reserve (students, housewives/housemen, early pensioners and retirees who are willing to continue working, etc.) (see Herbertsson and Orszag 2003) and to overcome the current mismatch between labour demand and labour supply (see Börsch-Supan 2001).

Immigration as sole solution to compensate for increasing dependency ratios caused by population ageing in Europe is unrealistic (see European Commission 2005; Börsch-Supan 2001). Even with a net migration of 1.2 million people per year like in 2002 and a fertility rate of 2.2 children per women (about 1.5 in 2004) there is hardly any significant influence on the European old age dependency ratios by 2050 (Eurostat 2005: web document). ‘In conclusion, immigration can contribute to filling certain specific gaps on the European labour market, but it can in no way stop or reverse the process of significant population ageing in Europe.’ (Eurostat 2002: 25) In the case of Finland, an additional factor has to be taken into account: if other EU Member States, which are also facing potential or real labour shortages, increase their efforts to woo young skilled immigrants, Finland may have competitive disadvantages due to its climate and its geographic location. In addition the country is used to low immigration levels in the past, hence any sharp increase could cause social frictions (see Helsingin Sanomat International Edition 2003b). Finland’s Nordic Welfare State model, on the other hand, could be an advantage to attract foreigners, but only if it becomes more accessible.

4. The socio-economic potential of population ageing

While population ageing is usually described as a threat or burden for society in public debates (see above), elder people themselves are often characterised as homogeneous social group which is ‘passive’, ‘unproductive’ and thus dependent on the welfare state. The economic potential of population ageing and the role of elder people as consumers, on the other hand, are widely neglected. This means that the economy misconceives a business area with an enormous growth potential: the ‘silver economy’.[14] There have been several interesting studies carried out in Germany in this context. According to Michael Cirkel et al. (2004), for example, the ongoing reduction of social security in combination with the adaptation to good living standards will lead to higher private investment and consumption. This applies primarily to financially potential groups of society, who attempt to maintain their accustomed way of life. In the case of young people the focus is on issues such as insurance policies (life insurance, private pension insurance, private unemployment insurance, etc.) while in the case of elder people services and products are more important. With regard to the latter group, especially the fields of health care, security, housing and home services, communication, leisure and wellness, as well as handcraft are considered to be profiting from this development (see Cirkel et al. 2004: 105-6; Hakamäki 2004).

Cirkel et al. (2004: 103-6) underline the fact, that population ageing will strengthen the service sector while the importance of the industrial sector is expected to decrease (older people need less cars and machinery but more services). Economically speaking, this is a positive trend as services are usually generated at the local and regional level while the industry is producing globally. Hence a stronger service sector with a focus on elder people has the potential to bind money and create jobs. If societies with a rapidly ageing population adapt and modernise their economies, they will not only have direct financial advantages but also a head start at the international level in terms of knowledge, new technologies, services and policies concerning population ageing. Countries which ignore the development, on the other hand, do not only face problems with regard to their social security systems but also their economic development in general (lacking consumption and investment; inadequate use of resources, etc.).

The hypotheses of Cirkel et al. are very interesting in the Finnish context. Most of the elderly in the country are in a good condition, they live independently in their own homes, and they will most likely never be in need of long-term institutional care. These facts lead to a totally new target group for marketing experts: financially well off, healthy and youthful retirees, who are interested in self-development, continual studying, travelling and a high standard of living. Jyrki Jyrkämä (2001) argues that in Finland the new image of active pensioners has been reflected among others in advertisement campaigns and popular self-help literature in recent years. Yet, Erja Väyrynen (2003) points out that the market for elder people as such is little developed so far, as the economic possibilities connected to population ageing have been ignored for a long time. This is likely to change when population ageing becomes a mass phenomenon in the near future.

The economic potential related to the ‘silver economy’ in Europe is based on the fact that the retirees of the baby boom-generation will be wealthier than their predecessors were ever before and they are used to consume. A research project in the federal state of North Rhine-Westphalia in Germany, for example, came to the conclusion that the large majority of the elderly dispose of a considerable consumption potential which is worth exploiting. As a result the economy and elder people would profit alike; the former in the shape of new markets and higher turnovers, and the latter due to more customer tailored services and products which enhance the quality of life at a high age (see Geschäftsstelle Seniorenwirtschaft 2004).

In the case of Finland, the general socio-economic situation of elder people has improved with the development of pension schemes and other welfare institutions. Nevertheless, there are notable differences in the income level of retirees. For example, women receive smaller pensions on average than men as they earn less and their working careers are more fragmented (Eläketurvakeskus and Kansaneläkelaitos 2002: 58). Some of the current and future retirees will also face smaller pensions due to spells of unemployment (either in connection with the economic crisis of the 1990s or due to the high level of unemployment among older workers). On the other hand, there are pensioners who were able to make savings or to purchase property which allows them to add up their pension by some capital income. According to Helsiningin Sanomat International Edition (2004b) the Finnish baby-boomers had plenty of time to accumulate considerable wealth during the growth years of the economy. Over 70 percent are home-owners, for example. The baby boom generation is used to a high standard of public services, which the state and the municipalities may not be able to provide anymore in the future. Hence, it can be assumed that the new retirees will fall back on their wealth and savings to purchase all kinds of goods and services which allow them a comfortable retirement. Matti Hakamäki (2004) expects that the baby-boomers will not settle with shallow entertainment or mass services like former generations, but insist on high quality services and individually tailored offers. It is therefore essential for companies and society as a whole to realise that ageing is an individual process and elder people are anything else but a homogeneous group.

The economic potential of the baby boom generation in Finland is also underlined by a survey from 1998 which was carried out by the national Statistics Centre (see Tilastokeskus 2005).[15] The households of the baby boom generation (age 55-64 and 45-54 at the time of the survey) were the wealthiest in the country (see Table 1). At the average, they possessed savings, properties, stocks etc. worth of 130,000 Euro (55-64) respectively 117,000 Euro (45-54). Another interesting result is that baby-boomer households had considerably higher disposable incomes but concurrently also higher consumption expenditures compared to pensioner households. Although the disposable income of the baby-boomers will decrease when they exit the labour market, their purchasing power remains comparably high and radical changes in consumption patterns are unlikely. Consequently the importance of the ‘silver economy’ will increase.

In 1998, pensioner households had already about 9,200 Euros for savings and the settlement of debts compared to an estimated 11,000 Euro of the baby-boomer households. This difference is surprisingly small and it should be kept in mind that the pensioner households had hardly any debts to settle. In theory the 9,200 Euro are at least partly available to be spent on new quality services and products for elder people. In how far this will be the case in the future depends primarily on three factors: first of all, the market behaviour of elder people; secondly, the quality and accessibility of public welfare state services; and thirdly, the ability of the economy to develop this new market.

However, it would be wrong to define the socio-economic potential of population ageing exclusively on the basis of people’s market behaviour. Even financially weak pensioners can be a value add for society when it comes to voluntary work or care arrangements (taking care of grand children, sick family members or friends in need). Such kinds of activities are often neglected in public debates, as a higher quality of life cannot be expressed in financial terms (immaterial growth). The same applies for the knowledge, skills and experiences of older people in general. In addition, the Finnish ‘generation contract’ entitles elder people to enjoy their retirement without worries about the accessibility of quality services and products, disregarding their own economic situation. Yet, it remains to be seen if this promise can be kept in times of rapid population ageing. The worst case would be rather contrasting scenarios of ageing in Finland: while the well-off and healthy Finnish pensioners enjoy their retirement in the coastal regions of Spain or other countries without any cutback as far as their standard of living is concerned; sick, poor and immobile retirees are forced to reduce their expenses and depend on public services (Ketola and Kunz 2005).

Table  SEQ Table 1: Size and wealth of Finnish households by age of reference person (based on a 1998 survey)

Source: Tilastokeskus (2005: 1); modified by the author.

5. Finland and its Nordic neighbours – a comparative view on population ageing

The problem of population ageing is not only on the agenda in Finland, but also in the other Nordic countries.[16] At a meeting in February 2004, the Swedish Prime Minister, Göran Persson (Social Democrats) and his Finnish colleague, Matti Vanhanen (Centre Party) agreed, for example, that ‘…the rapid ageing of the population is currently the greatest threat to the preservation of the Nordic welfare society’ (Persson and Vanhanen quoted according to Helsingin Sanomat International Edition 2004a: web document). Nevertheless, there are a couple of decisive differences between the Finnish case and the situation in Denmark, Sweden and Norway (see Table 2). First of all, the economic situation of Finland’s Nordic neighbours has been better in recent years, which is indicated by a higher gross domestic product (GDP), as well as higher employment and lower unemployment rates (see Table 3). Especially, the differences between Norway (and partly also Denmark) on one hand and Sweden and Finland on the other is outstanding in this context. In the case of Norway it can be explained by the country’s richness in natural resources, especially the North Sea oil. In the Danish case the comparatively good results are partly due to a high flexibility of the national labour market, which is based on the combination of low job security with high social protection (see Auer 2000).

A rather surprising difference is the low spending on social protection in Finland compared to the European Union and the other Nordic countries. This fact may be connected to the aftermath of the economic crisis at the beginning of the 1990s[17], which led to a reduction of welfare (see Kalela et al. 2001). Another explanation are the Finnish attempts to get the public debts under control. With regard to the fertility rates, Sweden is in a worse position than Finland but has considerably higher work-based immigration instead, while the fertility rates in Norway are among the highest in Europe. There are also major differences concerning the old age dependency ratio. The number of employed people per retiree was considerably lower in Sweden and Norway in 1990 but it is predicted to be higher than the one in Finland in 2020.[18] This means that the Swedish and Norwegian system could adapt to higher dependency ratios already in the past, which is expressed, for example, in a higher employment rate of older worker[19]. The Finnish system on the other hand is facing massive changes with regard to the dependency ratio in the near future.