Disability pension recipients

In the effort of securing income for people becoming permanently absent from the labour market, the Nordic countries have implemented different approaches. Some countries provide disability pension while other provide a pension related to employment or earnings from previous employment.

Though the approach might be different, the intention and outcome are of similar kind. This Is why it is possible to compare the Nordic countries on the general purpose of providing people permanently absent from the labour market with financial support. 

Disability pension can be granted to people whose workability is permanently reduced to such a degree that they cannot provide for themselves through regular employment or in a flexi-job. 

On January 1, 2013, the rules governing disability pension and flexi-jobs changed. The new rules mean that, in principle, people under the age of 40 cannot be granted a disability pension. Instead, they are included in holistically oriented activities intended to develop their workability 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. 

Simultaneously, the rules governing flexi-jobs were revised so that even people with very limited workability can be referred to flexi-jobs. This change means that more people can be directed to flexi-jobs instead of being awarded a disability pension.

The statutory old-age and disability pensions are governed by a single, coherent set of rules. 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. The disability pension is partially tax-free. In practice, no tax is paid on the early retirement pension.

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 inability 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 period between the onset of the pension and retirement are considered. As a rule, the earnings for this future period are determined based on 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, 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 people with no other income. Increased basic pensions are awarded to people who become disability pensioners at an early age before they have had the opportunity to participate in working life. 

In other words, people 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. Individuals aged 24 or younger when they are granted a disability pension receive 100 per cent of the amount of the basic pension, and people 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 up to one year, with a possibility of extension in the Faroe Islands. 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 may also affect the number of disability pensioners. Schemes such as the senior pension and early retirement pension 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 indicate that approximately 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 general equal to or higher than the old-age pension. Additionally, a few special supplements may be payable in Denmark (for pensions granted before the 2003 disability pension reform) and in the Faroe Islands. In the other countries, as mentioned above, an employment pension may also be available.

In recent year there has been changes in the number of people receiving disability pension in all the Nordic countries. This in mainly due to changes in legislation and/or implementation of measures supporting individuals in keeping their attachment to the labour market or supporting their return to employment.

Across the Nordic countries different measures have been applied, and they have affected the number of both recipients and new awards.

The graphs below show the changes in each country separately over the past two decades and illustrate the development that follow from changes within each country. 

Each graph is followed by a short description of the development.

The total population of people receiving disability pension has decreased from 4.3 percent in 2013 to 3.4 percent in 2019. The share has been increasing since 2019, reaching 3.9 percent in 2022. A possible explanation for this increase could be the implementation of the increased retirement age in 2019, which now follows the expected lifetime of each age group.

In the Faroe Islands a work-fare scheme has been implemented in 2013 with the aim of, amongst other things, reducing the number of new awards. The number of disability pensions with middle and lowest level has fallen in recent years.

In Finland the number of disability pension recipients has fallen in recent years and is still decreasing.

In Iceland the number of disability pensioners has gradually increased (approx. 3 per cent per year), while the number of new awards is somewhat stable.

In Norway there has been a general increase in the number of benefit recipients during the past two decades. The number of new awards has been stable, though somewhat lower the past couple of years.

In Sweden the rules applying to the awarding of disability pensions (sickness and activity benefit) have been tightened. This if reflected in both the number of benefit recipients and the number of new awards.

Only Finland, Iceland and Sweden have disability pension schemes that include or consist of employment- or earnings-related benefits.

In general, this type of disability pension benefit is based on income and life expectancy, with a reference income serving as the basis for determining the benefit size.

Denmark, the Faroe Islands, and Norway do not have disability pension schemes of this nature. However, collective agreements in these countries’ labour markets can include disability pension agreements that provide entitlements to supplements.

In the document below you will find a table with key features of the employment- or earnings-related disability pensions schemes in the Nordic countries. The table cover rules from the year 2022.