Annual adjustment of social benefits
Rules for adjustment of transfer incomes
Due to inflation, all cash benefits need to be adjusted. In most countries, most cash benefits are adjusted once a year. The most common method is to use price index that reflects the growth of consumer prices in the country.
There are three different systems for the adjustment of transfer income in the Faroe Islands. Adjustments to the level of pay are agreed by the private sector and consist of setting the level of payments in the event of unemployment and sick leave.
Payments in the event of social assistance and rehabilitation are also derived from this. Payments from the solidary pension scheme to the elderly are adjusted by the overall level of payment. Other social security transfers are adjusted in accordance with current legislation.
The maximum payment in the event of parental leave or unemployment, as well as the tax-free part of the basic old-age pension, is not adjusted.
In Finland, benefits are broadly protected by indices. Practically all basic social security benefits, except for housing supplements for students, are linked to the national pension index. Benefits are adjusted each January by the national pension index, which reflects the price level of the previous year. The national pension index follows the cost-of-living index, which is calculated by Statistics Finland based of the prices of essential goods. Most benefits linked to the national pension index are adjusted at the beginning of the year by an index-point figure set by the Social Insurance Institution.
All earnings-related pensions in payment are adjusted annually in line with the earnings-related pension index, in which wage-earners’ income level is weighted at 20 per cent, while the change in price level is weighted at 80 per cent. When calculating a new employment pension, the previous earnings are adjusted to the level of the year of retirement by means of a wage factor – wage changes are weighted at 80 per cent, while price increases are weighted at 20 per cent.
The old-age pension payable by the Social Insurance Scheme is calculated based on the basic amount. In 2011, as part of the pension reform, new adjustment rules were introduced that apply both to the basic amount and to the pension payable by the Social Insurance Scheme. The basic amount is fixed by Parliament and adjusted annually from 1 May to reflect the wages of those in active employment. The Further information rules are based on predicted wages in the adjustment year, adjusted for any deviation between the predicted and actual wages in the previous two years.
The adjustment basis is agreed between the national government and pensioners’, disabled people’s and professional organisations. Old-age pensions are first adjusted by the income development (basic amount), from which 0.75 per cent is then deducted when the pension amount reaches a certain point above the minimum level. The lowest pension levels are adjusted to reflect prevailing income trends, and then adjusted based on current life expectancy for 67-year-olds. Disability pension is calculated based on any previous pensionable income and the basic amount of the Social Insurance Scheme. The temporary Social Insurance Scheme benefit, arbeidsavklaringspenger (workclarification benefit), is calculated based on a recipient’s previous pensionable income. The benefit is adjusted annually in line with the changes in the basic amount from the Social Insurance Scheme.
Sickness benefits are not adjusted during a period of sickness absence. Consequently, they are not adjusted in the event of changes to an ill person’s wage/salary level or the basic amount during his/her sickness benefit period. The income basis used to set daily cash benefits in the event of unemployment is fixed for the entire period at the transition to unemployment benefits and is not affected by changes in the general income level in society. Financial social assistance is a means-tested benefit that is calculated both specifically and individually. Government guidelines for the calculation of support for maintenance (financial social assistance) are provided to adults and children in different age groups. The Ministry evaluates and revises the guidelines on an annual basis.
The basic pension is adjusted with the price base amount every year, while income related pensions are adjusted using the average growth of salaries for employed.
Child allowance does not adjust with any price related index. Other cash benefits related to childbirth and sickness are adjusted using the price base amount