Parental pension

What it means

The parental pension is a supplement to an old-age or disability pension paid to a parent who raised children. Its amount depends on how much the parent’s children paid into the pension insurance system. Parents with several working children can therefore receive a higher supplement.

It is paid by the Social Insurance Agency, usually once a year. Entitlement arises automatically from data on the children’s contributions, and the parent need not apply separately if all children are on record. It is not a benefit from old-age insurance in the usual sense but a separate supplement.

Its funding has changed in recent years. Under the rules in force for a certain period, children could increase their parent’s pension by directing part of their income tax to them, similar to the tax assignment to a non-profit. The exact rules for the relevant year should always be checked.

How it works in practice

During tax return season, we remind clients of the option to support their parents where the law allows it that year. A sole trader indicates it in the tax return, an employee in the form handed to the employer with the request for the annual reconciliation, or in a separate declaration.

The parents’ personal identification numbers must be given, and it should be checked that the parent receives a pension to which the supplement applies. Incorrect details mean the transfer does not happen and the tax goes to the state budget.

For employers, if an employee requests the transfer through the annual reconciliation, payroll must carry the details correctly into the report and issue a confirmation. It is not a company cost; the money comes from the employee’s tax.

What to watch out for

The parental pension rules have changed several times, and some changes were adopted shortly before tax return season. Before filing, check the current rules so as not to use last year’s form or procedure.

Directing part of the tax to a parent does not increase the child’s tax burden; it only changes where part of the tax already paid goes. It is, however, tied to the filing deadline for the return or declaration and cannot be claimed retrospectively afterwards.