Insurance saving
A savings or investment insurance policy is a product into which the policyholder pays either a single premium or recurring premiums. At an agreed time, the policyholder or a designated beneficiary receives the accumulated savings consisting of the premiums and the returns generated on them. Such contracts are long-term, typically lasting at least five years, though the invested funds can be withdrawn at any time if needed.
Life insurance savings policies
In a savings policy, the accumulated sum is paid out only if the insured person is alive at the agreed date. To cover the risk of death, savings policies are usually combined with life insurance. In the event of death, the insurance savings are paid to the beneficiaries named by the policyholder. The death benefit is subject to inheritance tax for close relatives (such as a spouse, child or other close relative). For others, it is taxable as investment income.
Investing insurance premiums
Depending on the product, premiums paid into an insurance savings policy can be invested in funds, fixed-income investments or a combination of both. In a unit-linked insurance policy, returns depend on the performance of the selected funds. In a fixed-income policy, the premiums earn either a guaranteed technical or a contractual interest rate along with any company-specific customer bonuses.
Capital redemption policies
A capital redemption policy is a savings, investment or wealth management contract offered by an insurance company under life insurance class 6. Traditionally used by companies and organisations, these products have also attracted interest from private individuals. Returns are based either on a guaranteed interest rate or a unit-linked investment approach, just as with other insurance savings products. Unlike other insurance savings products, a capital redemption policy does not insure anyone. It consists solely of a savings and investment component, with no risk coverage.
Pension saving and restricted long-term savings
Pension saving
There are many ways to prepare financially for retirement. In Finland, pension saving usually refers to restricted, tax-subsidised saving for retirement. The government encourages people to build their own retirement buffer by granting certain tax incentives, but in return, the funds cannot be withdrawn until the saver reaches a set age or other withdrawal conditions are met. Because legislation has changed over the years, the taxation of benefits varies depending on when the pension insurance was taken out.
Tax deductions
For the time being, pension saving contributions are tax deductible up to €5,000 per year. However, this tax incentive will be discontinued as from January 2027. This has already effectively snuffed out public interest in voluntary pension saving, and some insurance companies no longer sell new policies.
Tax exemption of returns
Another important feature of pension saving has been that investment returns are exempt from taxes. This means the saver does not pay tax on investment gains during the saving period – everything can stay invested and grow with compound interest.
However, when withdrawals eventually begin, both the withdrawn capital and the returns are taxed. In practice, the tax authority reclaims the earlier “tax loan”, but the saver benefits from the investment growth earned on the saved amount. Pensions paid out of voluntary pension insurance are taxed either as earned income or capital income, depending on how the original contributions were deducted. For policies taken out after 2004, the pension is taxed as capital income. Older policies may also be taxed as earned income.
Withdrawal restrictions
Because pension saving has benefited from tax relief, withdrawal options are restricted. Savings can only be withdrawn once the saver has reached the statutory retirement age under the Income Tax Act.
The retirement age of voluntary pensions depends on when the policy was taken out. Once withdrawals start, the funds can be withdrawn over a period of ten years, at minimum. If the saver continues working beyond the statutory retirement age without drawing from the savings, the payout period can be shortened by two years for every full year of postponement, but it can never be less than six years.
There are also special circumstances where early withdrawals are permitted, such as long-term unemployment (over a year), permanent or partial disability, the death of a spouse or divorce.
Long-term savings contracts (PS saving)
PS saving refers to restricted long-term savings contracts preparing for future retirement under the Act on Restricted Long-term Savings. The saver makes deposits into a designated PS account, from which the funds are then invested in various instruments such as bank deposits, investment funds, shares or bonds. PS saving is taxed in the same way as voluntary individual pension insurance. The retirement age is also the same in both.
The structure of all PS contracts is similar: the core is the account into which contributions are paid and from which they can be invested further. All returns – dividends, interest and capital gains – are also credited back to the same account.