What does index adjustment of pensions mean? The purpose of pension indexation is to adjust the accrued pensions or pensions in payment to ensure that they correspond to the currency value of the current year.
Pension indexation is carried out in two different situations using two different indexes: the wage coefficient prior to retirement and the earnings-related pension index for pensions in payment. The pension indexes for the next year are annually confirmed by the Ministry of Social Affairs and Health by the end of October. Index calculations and values are based on changes in prices (consumer price index) and earnings (index of wage and salary earnings) in comparison to the previous year.
Prior to retirement
People generally accrue pension over several decades. If, for example, one euro of pension earned twenty years ago were not adjusted to today’s value by means of indexation, its purchasing power would be quite low at the actual start of retirement. Therefore, when the amount of pension is being calculated, the earnings on which it is based are adjusted by the wage coefficient to the level of the current year. For the determination of the wage coefficient, the change in the earnings level carries a weight of 80 per cent and the change in prices 20 per cent. You can see your pension accrual, adjusted by the wage coefficient for the current year, in your pension record, for example.
Indexation for pensions in payment
Pensions in payment are adjusted by the earnings-related pension index at the start of every new year. The earnings-related pension index corresponds to the development in consumer prices in order to maintain the purchasing power of the pensions in payment. For the determination of the earnings-related pension index, the change in consumer prices carries a weight of 80 per cent and the change in the earnings level 20 percent.
Indexation also affects certain limits
Indexation has an effect on certain figures and limits related to pensions. The earnings limit for disability pension is adjusted at the start of each year using the wage coefficient. The wage coefficient is also used for the indexation of, for example, the amount of annual YEL income for those insured under YEL as well as the minimum and maximum limits for YEL income.
The limits applicable to Kela benefits are index-adjusted using the national pension index. One such limit is, for example, the income limit for national pension. An individual whose earnings-related pension exceeds this income limit is not entitled to receive any national pension. If the amount of your own earnings-related pension falls below the limit, you should enquire from Kela as to whether you might also be entitled to receive national pension.
Indexation is made automatically
Pension indexation is carried out automatically by pension providers, so there is no need to apply for the adjustment. In terms of pensions in payment, we notify all our pension recipients of the amount of their index-adjusted pensions by sending them a letter in January. The same letter also contains the index-adjusted earnings limits for those pension recipients whose pensions are subject to an earnings limit.
Latest index information
Index values for 2024:
Wage coefficient 1.637
Earnings-related pension index 3037
The wage coefficient increased pensions that are not yet in payment by approximately 5.1 per cent at the turn of the year. The earnings-related pension index increased pensions in payment by approximately 5.7 per cent at the turn of the year.