Interpreting IFRS Accounting Standards on Disability Pension Insurance: Example from Finland

Unlike occupational risks directly related to working conditions, employers cannot influence the risk of many work-limiting impairments and diseases of their employees that are not related to work. However, it is often possible to reduce the consequences of these conditions for work ability by, for example, adapting work or utilizing vocational rehabilitation. This is one of the main justifications for employer incentives aiming to reduce sickness and disability insurance enrollment and to promote the return to work.In Finland an experience rating system has been applied in statutory disability insurance since the birth of the system in 1962. Until 2005, experience rating was implemented through a so called ‘excess model’ (omavastuumalli), according to which employers were directly responsible for the disability pension costs either partially or fully, depending on the number of employees. In 2006, the system was reformed because of the new International Financial Reporting Standards (IFRS). IAS 19 standard for employer benefits was interpreted so that the benefit depends on the length of service, and thus obligation arises during employment (currently article 157). To avoid additional liabilities for employers, the defined benefit scheme was forced to transfer into a defined contribution scheme. The new system was given the name ‘contribution category model’ (maksuluokkamalli). The new system was more complicated than the earlier ‘excess model’: the employer was no longer directly responsible for the disability pension costs of its employees. Instead, the contributions started to be based on a relative risk level of employers, which determines their contribution category. A central difference between the old and the new model is how the disability costs are allocated over time. The process of determining the contribution category created in the employer’s view a delay on the affect of a worker’s disability on the employer’s premium level. Another change was that the employer no longer gained refund in the case of rehabilitation and the worker returning to work.The contribution category model has been under much debate since the beginning. In 2023 a set of re-forms was agreed on to improve the perceived fairness of the model.