Can Finland show EU way out of pension crisis?

At 62, Ritva Juvonen still enjoys her work and has no immediate plans to retire. In the meantime, her pension is building up nicely.

In Finland, where the average retirement age is 59 and the population is aging faster than anywhere else in Europe, she is an unusual case.

Ms Juvonen has worked in Helsinki's Stockmann department store since 1987 and is now a team leader in the grocery department.

"I will continue to work as long as I have motivation, like my duties and have sufficient energy," she said, adding: "I want to see through the expansion of the department store, which is going to be finished in 2010."

With Finland's old-age dependency ratio - the proportion of pensioners to workers - projected to reach 41 per cent by 2025, the highest in Western Europe, the government hopes there will be more like Ms Juvonen.

Like most countries in Europe, Finland experienced a baby boom after World War II, but the birth rate of the late 1940s has not been matched since.

Finland's working population shrank for the first time in 2006 and the country will have to face the pension crunch earlier than its European Union partners, despite having among the healthiest public finances in the bloc.

By 2025, the Finnish Centre for Pensions forecasts that retirement spending will rise above 15 per cent of national income, growing at a rate nearly three times the EU average. It was 11.6 per cent in 2005, the average for the bloc.

Faced with a rapidly ageing population, the government enacted reforms in 2005 aimed at getting people to stay in work for longer. It increased the financial incentives to carry on working while penalising those who retire early, and made it more difficult for companies to force older employees out.

From the age of 63, with increased contributions, workers now see their pension pot grow almost three times as fast as in earlier working life.

So is it working?

Since the reforms were introduced, the average retirement age has edged up by three months: the government expects it to rise by two years by 2025.

But there is a long way to go, economists warn. The Ministry of Labour said in December the employment rate of 55 to 64-year olds had risen in Finland faster than in any other European country in the past 10 years.

This was mainly the result of the part of reforms that made it more expensive for companies to force people into early retirement, Finance Ministry State Secretary Raimo Sailas said. But the Organisation for Economic Cooperation and Development (OECD) said last year too many Finns were still retiring early on unemployment or disability benefits.

"To ensure that the old-age pension reform is a success, encouraging longer working lives as alternative pathways to retirement is crucial," the OECD said in a country survey.

Matti Vuoria, chief executive officer of pension provider Varma, said while an ageing population presented a major challenge for Finland, it also offered an opportunity to develop solutions early and export them to the rest of Europe.

"The aging population structure offers potential for Finland too, in a way - when we have to look for solutions, how to provide services for the older population, and export these ideas and services," Ms Vuoria said.

Whether, and how, this potential materialises is not yet clear. One thing is sure, though. Finland needs more people like Ritva Juvonen. If not, the baby-boomers' dream of a comfortable retirement may become a financial nightmare for the state.