Voima Weekly #48 – Is the Pension Contribution Really a Tax?

This image was created with AI specifically for this Weekly. It illustrates perhaps the simplest characteristic of wealth: it can be owned, preserved, and passed from one generation to the next. A pension entitlement is a claim on the future system - your own wealth is yours today.

In the last Weekly, we looked at the weak financial position of young Finns. One natural counterargument was deliberately left unanswered:

What about pensions? Surely Finns save for their retirement throughout their working lives. Or do they?

In 2026, the average contribution to Finland’s statutory private-sector earnings-related pension scheme (TyEL) is 24.4% of salary. Of this, 7.3% is deducted from the employee’s salary, while the employer pays an average of 17.1%¹.

When almost a quarter of salary flows into the pension system for decades, you might reasonably assume that somewhere there is a substantial personal investment account accumulating in your name.

There isn’t. Finland’s earnings-related pension system largely does not work that way.

TyEL is only partially funded. In 2025, approximately €21.8 billion in contributions and government payments flowed into the private-sector pension system. Of this, €18.2 billion was used to pay pensions in that same year. Only €3.2 billion was transferred into pension funds.

Even that was not enough to cover current pension payments. An additional €5.4 billion was drawn from existing pension funds to finance them². This is not a “flaw in the system” – it is how the system was deliberately designed to work.

You are therefore not primarily saving your pension contribution for yourself. To a large extent, you are financing the pensions of today’s retirees, while in return you earn a statutory entitlement to receive a pension from the system in the future.

A pension entitlement and personal wealth, however, are not the same thing. A promise is not property.

With your own investment portfolio, you make the decisions: you can change investments, use the capital to start a business, pledge it as collateral or eventually leave it to your children. The capital belongs to you, and you decide how it is used. No equivalent pool of personally owned capital is created within the statutory earnings-related pension system. There is no individual investment account whose assets you control and which you can withdraw, pledge or transfer to the next generation.

Instead, you accumulate a statutory entitlement to a future pension, with its amount, timing and other terms determined by the rules in force at the time.

And those rules can change.

The terms of pension entitlements are not fixed. Retirement age is linked to life expectancy, the life expectancy coefficient affects the amount of the initial pension, and an inflation stabiliser due to take effect in 2030 may limit future index increases³. What you ultimately hold, therefore, is not personally owned capital but a right to a future benefit determined by the rules of the system. The contribution is compulsory, but what you receive in return is not personally owned capital.

For the self-employed, the distinction is even clearer. YEL, Finland’s statutory earnings-related pension insurance for self-employed persons, does not place contributions into a personal retirement account. Current YEL contributions, together with government funding, are used to finance current YEL

pensions. In 2026, the government is expected to finance approximately one-third of total YEL pension expenditure, because the contributions collected are not sufficient on their own⁴.

A person paying YEL contributions can therefore pay into the system for decades without accumulating corresponding investment assets in their own name. This is not an error or an exception; it is how the system was deliberately designed. Yet few people probably think about their pension contributions in these terms. At the same time, Finland’s earnings-related pension system holds a substantial amount of actual investment assets. By the second quarter of 2026, total pension assets had exceeded €300 billion⁵.

Herein lies the Finnish paradox: we have a collective pension portfolio worth more than €300 billion, yet the individual employee does not personally own a share of it.

It is therefore worth looking at how this capital has performed. According to TELA, Finnish earnings-related pension assets generated an average nominal return of 5.5% per year between 2006 and Q2/2026. Adjusted for consumer price inflation, TELA reports an average real return of approximately 3.5% per year⁶.

The return is positive, but its scale becomes more interesting when compared with the development of the euro area money supply. Over approximately the same 20-year period, broad money supply, M2, increased from around €6.345 trillion to €16.411 trillion, equivalent to an average annual growth rate of approximately 4.87%.

Over the same period:

Pension assets: 5.5% per year Euro area M2: 4.87% per year Difference: 0.63 percentage points per year⁷

M2 is not the same as consumer price inflation, but growth in the money supply is not economically neutral: a larger quantity of money ultimately competes for goods, services and assets.

This makes M2 an interesting benchmark for long-term investment returns. If capital grows at roughly the same rate as the money supply surrounding it, the nominal return may look impressive while its relative position improves far less.

When more money enters the system, savers have to run just to stand still.

Seen in this light, it is striking that twenty years of professional pension investing has outpaced the growth of the euro area’s broad money supply by only around 0.6 percentage points per year.

This leads to a much bigger question than whether Finnish pension institutions have invested well or poorly:

Why should such a large share of the cost of labour flow through the system instead of a greater share becoming wealth owned directly by the individual?

Gold provides an interesting comparison precisely because it makes no promise to its owner. If you own x grams of gold, you own x grams of gold. Its market price fluctuates, but over the long term gold has been an exceptionally strong store of purchasing power.

Gold does not need a future generation of workers to fund its promise. It has no retirement age, it cannot be reduced by a life expectancy coefficient, and its terms cannot be changed by pension reform. You can sell it, transfer it or pass it on to the next generation.

It is not a promise of future property. It is property today.

I am not arguing that Finland’s pension system should be dismantled or that pension contributions should be invested entirely in gold. I am asking a more fundamental question: would Finns be financially stronger if a greater share of the cost of their labour became capital that they personally owned, could invest and could pass on to the next generation?

My answer is yes.

The question becomes even more important when we consider the system’s future contribution base. According to long-term projections by the Finnish Centre for Pensions, the number of people aged 65 and over relative to those aged 15–64 is projected to rise from approximately 38.5% today to nearly 70% by the end of the century⁸.

The system will therefore have to be sustained in a future where there are significantly more retirees relative to the working-age population than there are today.

Is the pension contribution ultimately a tax? This leaves us with one question that is difficult not to ask.

Legally, the earnings-related pension contribution is not a tax; it is a compulsory payment through which you acquire a statutory pension entitlement.

From the payer’s perspective, however, the distinction is worth examining. The contribution is mandatory, most of today’s payments are used to finance current pensions, and the payer does not own corresponding personal capital or control how it is used, invested or inherited. The terms of the future pension entitlement can also be changed. So how far is such a payment, in practical terms, from a tax?

In the last Weekly, I wrote that wealth gives you the freedom to choose. Here the distinction may be clearest: a pension entitlement is a claim on the future system. Wealth is yours today.

That is why I would give younger generations in particular two simple pieces of advice.

First: save for yourself. Do not build your retirement around the assumption that the pension system, the monetary system and Finland’s public finances will look the same decades from now as they do today. Personal wealth gives you options. Gold is one excellent tool for this: it is globally tradable, can be owned without counterparty risk, and has been a strong long-term store of purchasing power.

Second: keep your family strong. Parents take care of their children, and in time children should take care of their parents. For me, this is also a biblical principle: responsibility for those closest to us belongs first and foremost to the family, not to the state or an institution.

A substantial gold account and a family that takes care of one another sounds to me like a far better retirement plan than relying solely on a state pension and a place in an elderly care institution.

–Marko Viinikka
Founder, CEO
Voima Gold Oy