Independent Choices and Extrinsic Pressure: EU Membership and the Development of Residence-Based Social Security Schemes in Finland

Date01 June 2016
DOI10.1177/138826271601800205
Published date01 June 2016
AuthorToomas Kotkas
Subject MatterArticle
/tmp/tmp-17W44q73ADy6n1/input INDEPENDENT CHOICES AND EXTRINSIC
PRESSURE: EU MEMBERSHIP AND
THE DEVELOPMENT OF RESIDENCE-BASED
SOCIAL SECURITY SCHEMES IN FINLAND
Toomas Kotkas*
Abstract:
Th
e article addresses the impact of the principles of free movement of persons and
services of the European Union on Finnish residence-based social security schemes.
Th

ree particular schemes are analysed: the minimum old-age pension scheme (national
pension), income support and the healthcare system (both municipal health services
and the social insurance-based system of reimbursement of the costs of private medical
treatment). In regard to each scheme, it is asked: (1) how the legislation has changed
during Finland’s EU membership, (2) whether the changes refl ect broader changes in
values, and (3) what the practical consequences of the changes have been, for instance
on migration or cross-border mobility? Th

e analysis shows that the eventual impact of
EU law on these three residence-based schemes has been relatively insignifi cant. Perhaps
the most signifi cant change has been the transformation of the national pension into a
pro-rata scheme. In other respects, many changes in the schemes have been induced by
internal political and economic factors rather than by external requirements resulting
from EU law. Th

us there seems to exist, at least for the present, a balance between
Finnish residence-based social security and the principles of free movement in the EU.
Keywords: European Union; Finland; free movement of persons; free movement of
services; residence-based social security
1. INTRODUCTION
Th
e key modern income security schemes were created in Finland in the 1950s and
1960s. Compared to many other European countries, a characteristic of the Finnish
income security schemes is their rather late emergence. For instance, the ‘national
*
Professor of Jurisprudence and Social Law, Law School, University of Eastern Finland; Address:
P.O. Box 111, 80101 Joensuu, Finland; phone: +358–50–3552632; email: toomas.kotkas@uef.fi .
164
Intersentia

Independent Choices and Extrinsic Pressure: EU Membership and
the Development of Residence-based Social Security Schemes in Finland
pension’ (kansaneläke) with universal coverage was only created in 1956. Th
is system
was a pay-as-you-go scheme with a fl at-rate pension and it replaced the older savings-
related scheme from 1937 that had proved to be ineff ective because of severe infl ation.
In the early 1960s, a mandatory basic unemployment insurance scheme and a
mandatory sickness insurance scheme were established. All these schemes were based
on residence.
It has been argued that the still rather undeveloped economic structure of Finland
in the 1950s and 1960s infl uenced in the fact that the basic income security schemes
were built on the principle of residence. In 1960, 33 per cent of the Finnish population
still earned their livelihood from agriculture. Th
e Agrarian Party was politically strong
and was able to push for residence-based schemes rather than work-based schemes.1
However, it must be kept in mind that, while the basic residence-based income
security schemes were created, simultaneously earnings-related complementary
schemes (second tier schemes) were set up. So, from the beginning, in addition to the
residence-based basic income security schemes, there have also existed work-based
income security schemes in Finland.2
In regard to social welfare and health care services, the responsibility for providing
them today lies with the municipalities. Th
e task of providing residents with poor
relief and early forms of health care was given to municipalities in the 1860s and
1870s. Th
ese functions were taken away from parishes on the grounds of municipal
autonomy. During the fi rst hundred years, the coverage and standard of services
remained low. Indeed, it was not until the 1970s that a comprehensive network
of health centres was established in the municipalities. In regard to social welfare
services, modern notions of social care replaced the older ideals of targeted poor
relief in the 1980s and the services were widened to cover the entire population. Th
e
situation has basically stayed the same until today.
Finland became a member of the European Union (EU) in 1995 although it had
joined the European Economic Area (EEA) a year earlier. Shortly aft er the accession
to the EEA and EU, the question of how membership would aff ect the residence-based
Finnish social security system at large was raised. As already mentioned, the right
to claim most social benefi ts was – and still is – based on legal residency in Finland,
and not on worker status or the payment of social insurance contributions. When
Maija Sakslin refl ected on the future of the Finnish residence-based social security
system in 1995, she asked whether Finland would ‘remain a universal welfare service
state or transform into a segmented and fragmented welfare state’. She used the term
‘segmented’ to refer to systems where only some of the social risks were covered
and then only for certain groups of the population. Her concern was that Finland
would adopt a system where diff erent segments of the population would be treated
1
Kangas and Palme (2005: 20).
2
Indeed, ever since the 1960s, the has also existed comprehensive earnings-related social security
schemes in the areas of pensions, unemployment security and sickness insurance.
European Journal of Social Security, Volume 18 (2016), No. 2
165

Toomas Kotkas
diff erently.3 Later, Sakslin suggested that the Finnish social security system would be
reformed in such a way that the values and aims of both the European Union and the
national system would be taken into consideration, i.e., that there would be a balance
between free movement of persons and the universality of social welfare benefi ts.
Special attention was to be paid to the reform of procedural provisions.4
Now that Finland has been a member of the EU for more than 20 years, one is
perhaps able to better evaluate whether concerns about the segmented welfare state
have been realised. Indeed, the aim of this article is to scrutinise how EU membership,
and especially the principles of free movement of persons and services, have changed
the Finnish residence-based social security system. Th
e emphasis is on the impact of
the free movement of persons and services on three particular schemes of the Finnish
social security system. Th
e schemes that are addressed are: (1) the residence-based
basic old-age pension scheme, i.e., the so-called national pension, (2) non-contributory
income support, and (3) health care, i.e., both municipal health care services, and
reimbursement of costs of private medical examination and treatment paid by the
Social Insurance Institution of Finland (KELA).
In regard to each scheme, it will fi rst be asked how – if at all – EU membership has
changed Finnish national legislation. Secondly, it will be asked if the possible changes in
the legislation refl ect a wider change in values or in the logic of each particular scheme.
Th
irdly, the article will examine what kinds of practical consequences the changes in
legislation have had on Finnish nationals as well as on migrants. For instance, has
inequality between diff erent sections of the population perhaps increased? What kind
of an impact have the changes in Finnish legislation had on mobility between Finland
and other Member States? Finally, in the concluding section, whether there currently
exists a balance between the principle of free movement and the Finnish residence-
based social security schemes listed above will be evaluated.
2.
RESIDENCE-BASED OLD-AGE PENSIONS
As already indicated in the introduction, there is a two-tier statutory old-age pension
system in Finland. Th
e fi rst tier comprises a residence-based basic old-age pension
called the ‘national pension’ (kansaneläke) as well as a residence-based supplementary
old-age pension called the ‘guaranteed pension’ (takuueläke). Th
e latter was
introduced in 2011 and is paid for those whose pension income – all other pensions
included – falls short of a fi xed minimum (766,85 €/month for a single person in
2016). Th
e actual amount of guaranteed pension is the diff erence between the fi xed
minimum and the person’s actual pension income. Both of these fi rst-tier old-age
pensions are administered by KELA. Th
e second tier comprises a statutory employee
pension (työeläke) scheme, which is an earnings-related system. Th
e administration
3
Sakslin (1995: 4, 275).
4
Sakslin (2000: 182–183).
166
Intersentia

Independent Choices and Extrinsic Pressure: EU Membership and
the Development of Residence-based Social Security Schemes in Finland
of employee pensions is decentralised to private authorised pension insurance
companies, company pension funds, and industry-wide pension funds (private sector
employees) as well as to a public pension institution called Keva (for public sector
employees). Th
e two tiers are interrelated. If the statutory employee pension exceeds
a certain amount (1,311.05 €/month for a single person in 2016), the pensioner is not
entitled to national pension. Th
e age limit for both the old-age national pension and
the old-age guaranteed pension is 65 years as a rule.
2.1. RESIDENCE REQUIREMENT IN NATIONAL PENSION
Today, the residence requirement for the national pension is that a person must
have lived in Finland for a...

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