Old-age pension

What it means

The old-age pension is a regular monthly benefit from pension insurance paid by the Social Insurance Agency. Entitlement arises once a person reaches pension age and has at least 15 years of pension insurance. The insurance record includes employment, self-employment with compulsory insurance and certain credited periods, such as caring for a child.

The amount is calculated by a formula that takes into account the average personal wage point, the ratio of the insured person's earnings to the average wage in each year, the number of years of insurance and the current pension value. The pension therefore reflects how long and on what income contributions were paid. It is indexed every year.

The first-pillar old-age pension can be supplemented by a pension from the second pillar, savings with a pension fund management company, and by voluntary savings in the third pillar. For people who saved in the second pillar, the first-pillar pension is reduced accordingly for the savings period.

How it works in practice

For entrepreneurs and directors it matters that their future pension depends on the base on which they pay contributions. Sole traders who pay minimum contributions for many years may end up with a low pension. When setting remuneration, for instance the mix of salary and dividends, this long-term consequence should be considered too.

It is possible to work alongside the old-age pension without losing it. For employers, employing pensioners has special contribution rules, such as exemption from some types of insurance and, for work agreements, the option of a contribution relief. A working pensioner can later have the pension recalculated for the additional period worked.

Before retiring we recommend checking the pension insurance record and adding any missing periods, such as study, work abroad or care periods. The application is filed at a Social Insurance Agency branch or electronically. For work in other EU countries, periods are aggregated under EU coordination rules.

What to watch out for

The pension system changes frequently, especially regarding pension age, indexation and the calculation. Older estimates may no longer apply. When planning retirement, work from the current rules and a fresh calculation by the Social Insurance Agency, not estimates from years ago.

Periods for which contributions were not paid, for example because a sole trader owed the Social Insurance Agency, may not count. Any arrears are therefore best settled before applying. For an early retirement pension, its permanent reduction must be weighed.