Do we need special pension provisions for hazardous or arduous jobs?
In Europe, retirement ages keep rising. Yet, in many European countries, some people can retire earlier than others. They are granted a special pension based on their hard jobs. Is this type of benefit needed?
To answer the question, we must begin with a textbook recapitulation of the aims of social insurance. Social insurance exists to cover various risks. The old-age pension provides an income for the rest of one’s life, even when one has stopped working. The disability pension provides security in case one loses the ability to work, and health insurance secures income in case of short- or long-term health issues. Which social risk do the special pensions for hard jobs cover?
This is no random question. It’s been asked by many different parties as of late. In the spring of 2023, Risto Murto, Managing Director of Varma Mutual Pension Insurance Company in Finland, suggested that the Finnish ‘hard job pension’, officially known as years-of-service pension could be abolished or combined with some other pension benefit. Last summer, pension experts Mika Vidlund and Peter Lindström of the Finnish Centre for Pensions discussed this benefit in an article. They asked why these special pensions have been introduced in the Nordic countries at the same time as retirement ages have been raised. The OECD addressed the significance of special pensions for hazardous or arduous jobs in its recent biennial report Pensions at a Glance. It seems the time is right for a closer look at whether these pension benefits are needed.
Small part of extensive social insurance
Whether a job is hazardous or arduous may rightfully seem like an odd question when talking about pension insurance. Traditionally, pensions have been associated with old age or disability. It’s impossible to remove the hardship of work afterwards. For the individual, intervention at working age would be preferable. Tools and working environments can be adjusted at workplaces to make the work less hard. Another means would be to raise wages, that is, compensate for the hardship of the work in the wage and, by extension, in the pension level. A higher income and pension would be the reward for putting one’s own health at risk at work. It’s also a fact that, as one gets older, one’s abilities are affected, making it impossible to carry out certain work tasks. At least not as well as before. In such cases, retraining at working age would be a preferable measure instead of retiring on a special pension for hard jobs.
As the OECD points out in its recent report – Pensions at a Glance 2023 – special pensions for hazardous or arduous jobs are not actually based on the hardship of work but on the consequences arising from performing certain jobs: poorer health. There is no separate social insurance for such a risk. The disability pension offers cover against incapacity for work, not against delayed effects on one’s health caused by work. In this respect, the OECD finds that special pensions for hard jobs could play a supplementary role alongside disability pensions. There is no insurance to cover shortened life expectancy.
A shot in the dark?
Historically, retirement ages have been lower in some fields or among some groups of workers. Such arrangements have been dismantled in recent decades. Doing so has often been difficult since the workers have perceived previously agreed retirement ages to be achieved benefits. I experienced this first hand when I assisted Montenegro in developing practices concerning pensions for hard jobs in December 2023. The country’s previous similar scheme had become a poorly managed benefit which covered just over 4 per cent of the workers. Most of them were men. Only for some of them, the working conditions could be presumed to have negative health effects. Earlier access to retirement had become an achieved benefit in many sectors and was defended passionately. From this point of view, pensions for hard jobs don’t cover against a particular social risk.
Arrangements based on occupation, sector or workplace are poorly targeted. Having a certain occupational title or working within a particular sector doesn’t necessarily reflect what the working tasks or conditions are. Instead, special pension provision should be based on detailed descriptions of the work tasks that are defined as hazardous and arduous. Studies show that certain job tasks have been observed to affect health negatively, sometimes with a delay.
Investing in prevention pays off
As the name suggests, the need for special pensions for hazardous and arduous jobs arises during working life. This need can be prevented through a variety of measures. The poorer the occupational safety and work ability are, the greater the need for these special pensions. That is why occupational health and safety and, by implication, a reduction of health risks relating to jobs, is the best way to remove the need for special pensions for hard jobs. Finland has put in a great deal of effort in this respect and must continue to do so. Also the OECD finds it more appropriate to invest in working conditions, health and work ability of workers than in pension benefits.
In conclusion, considering OECD’s approach, the answer to the question in the heading of this blog is ‘yes’. Nevertheless, by investing in good conditions at work, the need for special pensions for hazardous and arduous work remains small.
