Pension Insurance for the Self-employed

Self-employed persons' pension insurance is obligatory for everyone covered by the Act. The self-employed person finances his or her own pension cover. Insurance has to be taken out with a pension insurance company or a relevant pension fund within six months of setting up the business. All business activities of the self-employed person are insured with one insurance policy. The Self-Employed Persons' Pensions Act (YEL) also concerns foreign self-employed persons resident in Finland.

In 2011, the contribution rate is 21.6 per cent of the confirmed income under YEL for self-employed persons aged under 53 and 22.9 per cent for persons having reached the aged of 53. The contribution can be paid in several installments.

The self-employed person's pension insurance is a central part of the self-employed person's safety net. The Self-employed Persons' Pensions Act (YEL) covers different situations in life. Self-employed persons' pension insurance provides income in case the self-employment ends due to disability or old-age. The family members are covered for survivors' pensions after the death of the self-employed person. On certain conditions, the self-employed person may also take a part-time pension.

The earned income is the basis for the insurance. The income should correspond to the work input of the self-employed person (financial value of the work input). The pension amount and the insurance contribution are calculated on the basis of this income. If the value of the self-employed person's work input changes, the earned income can be adjusted, but not retroactively. It should be noted that the earned income also affects the self-employed person's other social security benefits, such as the sickness allowance. The self-employed person's insurance is a production cost for the company. The insurance contribution is fully deductible in the taxation.

The YEL contribution is flexible. The self-employed person may improve his or her pension provision by paying higher contributions during prosperous years without permanently increasing the confirmed income under YEL. During less prosperous times, the contribution may be reduced, with the confirmed income decreasing correspondingly. Further information is available from the pension providers and on the tyoelake.fi site.

Insurance to be arranged within six months

According to the Self-employed Persons' Pensions Act (YEL), insurance is obligatory when the requirements in the acts are applicable to the self-employed person. The self-employed person may take out pension insurance with a pension insurance company or with a pension fund, if there is a pension fund for his or her line of industry (contact information to the pension insurance companies and pension funds is available on the tyoelake.fi site). The pension insurance must be taken out within the first six months of self-employment.

A self-employed person is a person who is not working under an employment contract or in public office. The other requirements for coverage by the Act are the following:

  • the insured is aged 18-67
  • the business activity has lasted for at least four months
  • the estimated annual earned income is at least that stipulated by law.

A person who holds a leading position in a limited company and who owns more than 50 per cent of the company shares has to be insured in accordance with the Self-Employed Persons' Pensions Act (YEL). A partner in a partnership and a responsible partner in a limited partnership are also insured under YEL.

A first-time self-employed person is entitled to a 25 per cent reduction on the contributions. The reduction on the contribution is not dependent on age and it is granted for the first 48 months of self-employment. If the first period of self-employment ends before the 48 months are up, the remaining discount time may be used during a later period of self-employment.

Neglect in contribution payments reduces the pension

A self-employed person accrues pension rights on the basis of paid YEL contributions. If the self-employed person has neglected to pay contributions and the contributions have expired, his or her YEL pension will be reduced. If contributions have been left unpaid during a certain year, the earned income for that year will be reduced in proportion to the unpaid contributions. If the contributions for a certain year are left unpaid altogether, the earned income for that year is EUR 0 when calculating the pension.

The Finnish Centre for Pensions supervises earnings-related pension insurance for self-employed persons. If a self-employed person has not taken out insurance, the Finnish Centre for Pensions reminds him or her to do so within a reasonable time period. If the self-employed person fails to heed the reminder, the Finnish Centre for Pensions takes out YEL insurance with a pension provider on the self-employed person's behalf and at his or her expense. For the period of neglect, the contribution may amount to double the normal contribution.

On his or her own initiative, the self-employed person may also take out insurance retroactively for the current and the three preceding years, at a maximum.

For more information on taking out insurance under the Self-Employed Persons' Pension Act (YEL), please contact a pension provider.

Further information

Työeläke.fi

Pension insurance companies

17.08.2011