Disability pension depending on health

Previously, the statutory old-age and disability pensions were governed by a single, coherent set of rules. Following the disability pension reform of 2003, only one form of disability pension is awarded. It may be awarded to those whose capacity to work is permanently reduced to such a degree that the individual in question cannot provide for him/herself through regular employment or in a flexi-job.

On 1 January 2013, the rules applying to disability pension and flexi-jobs were amended. The new rules mean that, in principle, people under 40 are not awarded a disability pension. Instead, they are included in holistically oriented activities intended to develop their working capacity and help them live independently. In cases where it is evident that the individual in question cannot return to work, the local authorities may still award a disability pension. This applies to those whose condition is so severe that it would be pointless to try to develop their working capacity.

At the same time, the rules applying to flexi-jobs were amended so that even people with very little working capacity can be referred to flexi-jobs. This means that more people may be referred to flexi-jobs instead of being awarded a disability pension.

The disability pension is divided into three different levels according to the pensioner’s ability to work. Highest level is awarded pensioners with no workability. The pension consists of a basic amount, a supplement, and a disability benefit. Disability pensions are taxable in the same way as other income however the disability benefit is tax-free. Furthermore, disability pensioners are subject to tax-reduction.

Disability pension is paid to a person who is unable to earn an income because of an illness or disability. Disability pension is one of the benefits in both the national pension scheme and the earnings-related pension scheme. Disability pension substitutes the loss of income caused by long-term incapacity for work. The pension may be

• a disability pension granted until further notice or a temporary rehabilitation subsidy (=fixed-term disability pension)
• in the earnings-related pension scheme, also a partial disability pension or partial rehabilitation subsidy

Disability pension becomes old-age pension when the person reaches the retirement age for old-age pension.

In disability pensions under the earnings-related pension insurance scheme, the earnings before the disability and the future time period between the onset of the pension and retirement are taken into account. As a rule, the earnings for this future time period are determined on the basis of the last five calendar years before the start of the disability pension. Disability pension is paid in the national pension scheme if the person does not receive any other pension, or the other pension is small. The amount of the pension also depends on how long the person has lived in Finland.

The disability pension consists of a basic amount, a supplement, and an age-dependent benefit. Depending on their marital status and income, disability pensioners may also be granted housing benefits. In addition, a special benefit can be made available to those with no other income. Increased basic pensions are awarded to those who become disability pensioners at an early age before they have had the opportunity to participate in working life. In other words, those who have been unable to accumulate an employment pension. The age-dependent benefit is an addition to the disability benefit and is gradually reduced the older the pensioners are when they are granted disability benefit. Those aged 24 or younger when they are granted a disability pension receive 100 per cent of the amount of the basic pension, and those who are aged 61 to 66 when they are granted disability benefit receive 2.5 per cent of the amount of basic pension.

The permanent disability pension is calculated in the usual way. Alongside the disability pension, the recipient may also receive income from work up to the basis amount. In addition, those who are partially disabled may receive income from part-time work. If the income reaches a certain level, the disability pension rate is re-evaluated. Those who become incapacitated and unable to work before the age of 26 are awarded extra pension points.

The disability pension was changed in 2003 to incorporate a temporary sickness and activity benefit. While the disability pension was previously part of the general pension system, the sickness and activity benefit is part of the sickness insurance scheme. People aged 30 to 64 may receive the sickness benefit if their working capacity is reduced. People aged 19 to 29 may be awarded an allowance due to a reduced activity level. This benefit is always limited to between one and three years. The employment pension is calculated based upon previous income from work.

Some alternative benefits affect both the awarding of disability pensions and the number of disability pensioners. In all the Nordic countries, sickness benefits are payable for a maximum of one year, with a possibility of extension in Denmark. Since 2003, disability pensions in Sweden have been replaced by a sickness and reduced activity benefit.

In Norway, a work assessment allowance is normally payable before a disability benefit is awarded.

Other disability pension schemes (referred to in this report as special old-age pensions) may also affect the number of disability pensioners. Schemes such as the voluntary early old-age scheme in Denmark and, until recently, the unemployment pension scheme in Finland until 2015, have contributed to a reduction in the number of disability pensioners in those countries. In Norway, the AFP scheme (under which pensions are fixed by collective agreements) affects the number of disability pensioners. Several studies have shown that approx. 20 per cent of AFP pensioners would have been disability pensioners had the scheme not existed.

In all the Nordic countries, the amount of the disability pension, including pension supplements, is in principle either higher than or equal to the old-age pension. In addition, a few special supplements may be payable in Denmark (if the pension was granted prior to the 2003 disability pension reform) and in the Faroe Islands. In the other countries, as mentioned above, an employment pension may also be paid.

Denmark

The number of new awards has been falling since 2013 due to the reform of the disability pension.

Faroe Islands

A work-fare scheme has been implemented in 2013 with the aim of, amongst other things, reducing the number of new awards.

Finland

The number of disability pension recipients has fallen in recent years and is still decreasing.

Iceland

The number of disability pensioners has gradually increased (approx. 3 per cent per year).

Norway

At the end of 2016, there were 318 200 recipients of disability pensions in Norway, an increase of 1.1 per cent from 2015. 9.5 per cent of the population (18-67 years) were in receipt of disability pension.

Sweden

The rules applying to the awarding of disability pensions (sickness and activity benefit) have been tightened.