2005 Reform

Increased Contribution for Wage Earners and Flexible Contribution for the Self-employed

Due to the 2005 earnings-related pension reform, the insurance contribution varies according to age. Employees aged 53 or above pay a contribution that is nearly 30 per cent higher than that paid by younger employees.

On the other hand, the pension accrual rate for those aged 53-62 is higher than for those aged under 53; for those aged 63, as much as three times higher. The older generations thus participate, for their part, in the accrual of their higher pension provision.

Employees have paid part of the earnings-related insurance contributions since 1993. Changes to the contributions are divided equally between the wage earners and the employers.

As of 2005, a self-employed person may pay a higher contribution under the Self-employed Persons’ Pensions Act in good times and a smaller one in tougher times, without changing the permanent contribution. The use of the flexible contribution does not affect the amount of the confirmed earnings, but it affects the pension that is accrued.

The increased contribution must be at least 10 per cent higher than the permanent contribution. The increase may not be higher than the permanent contribution, in which case pension accrues twice as much as when the regular contribution is paid. The self-employed may pay an increased contribution every year.

The contribution can be reduced by a maximum of 20 per cent of the permanent contribution. The reduction may be used during three calendar years per seven consecutive calendar years. In general, the combined permanent and increased contribution may not exceed the contribution for the maximum annual YEL earnings for the year in question.

The lower YEL income limit changes annually due to the changes in the wage coefficient. The flexible contribution may not be smaller than the contribution for the lower income limit for the year in question.

Flexible contributions are not possible for

  • the self-employed who have turned 63 years
  • a retired self-employed person
  • a  self-employed person who receives a contribution discount for a starting self-employed person, or
  • a self-employed person who has unpaid YEL contributions.