Demographics: State tries to persuade people to spend longer at work

Among Europe’s many challenges, one of the most significant in the long term is receiving very little attention: ageing populations.

The demographic trends for the continent as a whole are worrying, with low birth rates meaning the number of working-age people that can support pensioners is shrinking year by year.

Nowhere is this a bigger problem than in Finland. At the same time, few countries are grappling with the problem so openly, making it an interesting test bed for the rest of Europe.

In the developed world, only Japan has a population that is ageing as rapidly. In Finland the demographic challenge owes much to a huge baby boom immediately after the second world war.

That generation is now reaching pensionable age.

Jyrki Katainen, the prime minister, says: “Our population is ageing more rapidly than that of any other country in Europe.

“We know that our society will change very drastically in the next couple of decades.”

The results are only just starting to be felt.

Currently, there are 53 pensioners and children for every 100 workers – the “dependency ratio”. That is little changed from 1981, when there were 47 “dependents” for every 100 workers.

However, in as little as 15 years time, the figure is expected to be 75.

The government’s broad policy thrust is to get people to work for longer, not just by trying to raise the effective retirement age but also by encouraging the young to start working earlier.

After reforms last decade, the official retirement age is between 63 and 68. Employees can choose when to leave, but there are incentives for those that work for longer.

These changes have borne fruit and the employment rate for those aged 55-64 has risen from 46 per cent in 2001 to 56 per cent in 2010.

However, in common with many developed countries, the average age at which people retire is lower, at just 60.5 years.

Increasing both the official and actual ages of retirement are government goals, but the issue is divisive, so much of the work has been pushed back until 2017, in the hope that this will give time for a consensus to develop.

One suggestion, endorsed by the European Commission, is to link the retirement age with life expectancy.

Meanwhile, the five-year delay until 2017 has prompted criticism from the OECD, a club of mostly rich nations to which Finland belongs.

In its latest report on the country from this year, the OECD says: “Current fiscal plans are not ambitious enough to deal with fiscal challenges related to an ageing population.

“Raising the retirement ages, improving incentives to work for older individuals and further tightening early-retirement schemes would increase labour supply and could lower fiscal costs sufficiently to address these long-term challenges. Without major retirement reforms, significant further fiscal consolidation would soon be needed to deal with the costs of ageing.”

Finland is also attempting changes at the other end of the age range.

Students in northern European countries such as Germany, Norway and Finland often spend more than five years at university.

Mr Katainen explains: “What we are doing at the moment is trying to get the young people earlier out of school and earlier into professional life.”

He talks of limiting financial support to a certain length of time.

The head of one of the country’s biggest companies says simply: “In Finland, we need to solve the problem of the supply of labour: make people start earlier and work longer, and import more labour.”

Finnish universities have made a big effort to recruit students from Asia, especially from India.

For all the concern about demographic trends, researchers and companies also see opportunities.

“Population ageing is a medal with two sides,” according to a study by Jan Kunz of the University of Tampere, published in the Journal of Sociology.

As well as the more negative aspects he argues, “population ageing also offers opportunities, for example, in the shape of a ‘silver economy’ and voluntary work on behalf of retirees”.

Companies seeking to take advantage of this include Sampo, the Finnish insurance and financial services group, Orion, which manufactures a drug to treat Parkinson’s disease, and Raisio, the food company that makes Benecol, a cholesterol-reducing ingredient.

The government is also trying to reform the municipal government system, a controversial move which aims to lessen the financial burden on very large regions with small numbers of people, in particular.

“At the moment, we encourage them to reform and merge. We try to achieve strong municipalities that can take care of services,” Mr Katainen says.