Basic elements in Finnish social protection

The basic elements in the Finnish social protection system are preventive social and health policy, social and health care services, and social insurance. The main aim of social protection is to safeguard people’s income by providing a comprehensive system of basic security and income-related benefits which guarantee a reasonable level of consumption in different risk situations. An important element in the Finnish social protection system is the comprehensive social and health services it provides.

The social protection system has been built up over several decades. It is characterized by universality of benefits. As in other Nordic countries, it is primarily residence in the country that qualifies a person for social protection.

The social protection system has guaranteed social cohesion, fairness and equality. Almost all households get some kind of income transfer or use social and health services from time to time. The system of income transfers has effectively levelled out income distribution, which is fairly even in Finland, measured in terms of households’ disposable income. The poverty rate is one of the lowest in the EU.

The principle of equality is firmly incorporated into the social protection system. The vigorous development of the day care system for small children has enabled women to participate widely in working life, and about 70% of mothers of young children do so. All children under school age (7 years) have the right to municipal day care.

Social expenditure near EU-average

The ratio of social expenditure to GDP is now under the EU average. In 2003, social protection expenditure accounted for 26.9% of GDP. Social expenditure is mainly financed by employers, central government and the municipalities. The direct contribution to social protection expenditure made by the insured is far lower in Finland than in other EU countries, and the financial contribution of central government and the municipalities is correspondingly higher. This is a typical feature in countries with benefits based on universality.

Close connection between preventive actions and social and health services

Preventive action is an integral part of social protection in Finland. Its aim is to forestall a range of risks and problems so that use of the more expensive services and forms of assistance can be minimized. People are encouraged to look after their own health and to cut their use of tobacco and alcohol. The main areas of preventive action are environmental health care, effective primary health care, occupational health care, maternity and child welfare services, and the prevention of poverty and social exclusion.

The municipalities are responsible for arranging basic services like schooling, social services and health services. Most municipalities have less than 10,000 inhabitants. Statutory services are provided by municipal institutions, either the municipality’s own or joint bodies run together with other municipalities. The municipalities can also buy these obligatory services from the private sector.

Both central government and the municipalities have the right to levy taxes. The municipalities receive a central government grant to enable them to arrange the services they are obliged to provide. Clients have to pay a fee for the services they use. The most important areas in the service sector are primary health care and specialized medical care, children’s day care, care of older people, services for people with disabilities, social assistance and child welfare. Social assistance is a last-resort benefit. Private services supplement the public services.

Certain benefits, such as parental leave and child allowance, are universal. The level of child allowance depends on the number of children in a household, and is payable for children under 17. Child allowance is non-taxable. All parents have the right to take parental leave, and fathers resident in Finland have the right to a separate paternity allowance for 6–18 working days. In addition to this, fathers are entitled to paternity allowance for 1–12 weekdays immediately after the end of the parental allowance, if the father has had parental leave for at least the final 12 weekdays of the parental allowance period. When a baby is born, the family also receives a maternity pack that contains clothes and baby care requisites. All children under school age (7 years) have the right to municipal day care or, alternatively, their families can receive financial support for private day care or home care for their children. The municipalities are obliged to arrange preschool education to all children under the age of 7.

Comprehensive and statutory social insurance

In Finland, all residents are covered by social security schemes which govern basic pensions (national pensions), sickness and maternity benefits and unemployment benefits. In addition, all employed persons are entitled to benefits based on employment, such as earnings-related pensions and benefits for employment-related injuries. A distinctive characteristic of the social insurance system in Finland is that a large proportion of social insurance is managed by private insurance institutions, although the system is obligatory and statutory.

Finland has two pension systems: the national pension scheme and the earnings-related pension scheme. Both schemes pay old-age, disability and survivor’s pensions. The national pension scheme provides pensions on the basis of residence to guarantee a minimum income, whereas the other scheme is based on employment and related to earnings. The national pension is coordinated with pension from the earnings-related pension schemes and paid to persons with a low or no earnings-related pension. When the earnings-related pension exceeds a certain amount, there is no entitlement to national pension. National pensions are administered by the Social Insurance Institution (Kela). The earnings-related pension schemes are managed by private insurance institutions. The Finnish Centre for Pensions (ETK) is the central body. The public sector has its own pension institutions.

Unemployment benefits consist of earnings-related allowance, basic allowance and labour market support. Most employees are covered by their own sector’s unemployment fund, in which case they are entitled to an earnings-related allowance.

All employed persons and farmers are covered by mandatory insurance against occupational injuries and occupational diseases. Self-employed persons other than farmers can take out voluntary insurance. The occupational accident insurance scheme is administered by private insurance companies. Motor vehicle third-party liability insurance is obligatory in Finland.

National health insurance compensates for income lost due to temporary incapacity for work. The allowance is proportional to the applicant’s earnings. A lengthy illness or period of disability can affect the everyday life of the person concerned in various ways. Rehabilitation can help prevent and alleviate these effects. Rehabilitation benefits are provided in order to improve and maintain the capacity of persons with handicaps or severe disabilities to work and cope with their everyday lives as well as possible, despite their condition.

According to opinion polls, the Finnish social protection system enjoys widespread public support.

EU as an operational framework

Under the principle of subsidiarity, social policy belongs to the competence of Member States. Nevertheless, the European Union is more and more the environment in which social policy has to operate. The euro area now covers 12 countries, including Finland, and has generated further discussion about the financing of social protection. While the main impact of EMU is clearly positive, as interest rates have been falling and the economy expanding, the risk of asymmetrical shocks is nevertheless still real within the framework of the Stability and Growth Pact.

The entry into force of the Treaty of Amsterdam reinforced the social dimension at EU level. The Treaty of Nice will further strengthen the position of social policy, as it includes confirmation of the legal basis of the new Social Protection Committee (art. 144). Common challenges shared by the entire Union include raising the employment rate, combating poverty and social exclusion, an ageing population and sustainable financing of the pension systems and health care. These challenges are closely connected with the process of Union enlargement.

The basic question is how to successfully combine macroeconomic policy, employment policy and social policy in order to improve the competitiveness of the European Union. Improving the social dimension of the EU means better coordination of national policies and strengthening the common framework for European social policy. The Open Method of Coordination (OMC) is a new form of cooperation at European level that integrates national diversity and European unity in a potentially fruitful way. It is a key element of the Lisbon Strategy accepted by the Lisbon European Council in 2000. Under the OMC, Member States can set common objectives and agree on follow-up indicators, reporting and benchmarking. So far, such common objectives have been agreed in the areas of poverty and social exclusion, pension policy and health care. They provide useful guidelines for further work in these areas at national level.

Strategic goals in the administrative sector

Shared strategic goals have been set for the entire administrative sector. The goals for 2003 were still largely based on the strategic goals set by the previous Government. The main challenges in the administrative sphere of the Ministry of Social Affairs and Health were linked with the ageing of the population and its functional capacity, economic trends, European integration, the employment rate and long-term unemployment, exclusion, regional development and sustainable funding for social protection.

The main outline of the strategic goals of the Ministry of Social Affairs and Health has been similar for many years now. The background documents for setting strategic goals in the sector are the report Strategies for Social Protection 2010 , published in 2001, and the new Government Programme. During the year under review, the social welfare and health policy guidelines were grouped under four themes, which were

• promoting health and functional capacity,
• making work more attractive,
• preventing and alleviating social exclusion, and
• functional services and reasonable income security.

In accordance with the areas of emphasis in the new Government Programme, the welfare of families with children and gender equality were also emphasized.