The welfare effects of the Finnish survivors’ pension scheme

The mandatory pension system in Finland includes survivors’ pensions to surviving spouses. The survivors’ pension scheme has been criticized on equity grounds because it represents a significant net transfer from singles to certain type of married couples. However, before possibly eliminating or reforming the scheme, it is important to understand its welfare effects. In this paper, I analyze survivors’ pensions as part of the overall pension insurance system. I use a numerical life cycle savings model to evaluate the value of current survivors’ pensions for different households in welfare terms. I find that the current survivors’ pensions are likely to be a very valuable part of the overall pension insurance for many households. In the absence of distributional concerns, it would probably be optimal to further increase survivors’ pensions.