The pension insurance for the self-employed is based on their confirmed income under the Self-employed Persons’ Pensions Act (YEL). A self-employed person must take out pension insurance under YEL on their own. The insurance is mandatory when the self-employed person meets the conditions for the insurance. The insurance must be taken out within six months from starting self-employment, either with an earnings-related pension insurance company or a pension fund, if one exists in the field in question.
A person is considered self-employed if they do not work under an employment or service agreement. Other preconditions for being covered by the Act include:
- the self-employed person is 18–67 years old (for those born in 1957 or earlier, the insurance obligation ends at age 68, for those born between 1958 and 1961, the insurance obligation ends at age 69, and for those born in 1962 or later, the insurance obligation ends at age 70);
- the person has worked as a self-employed person for at least four months; and
- the estimated annual earnings from work amount to at least 8,575.45 euros (in 2023).
A partner to a partnership and the responsible partner of a limited partnership must take out pension insurance under YEL. A person in a leadership position of a limited company, who owns alone more than 30 per cent or, together with family members, more than 50 per cent of the company or the voting rights, must also take out insurance under YEL.
YEL entrepreneurs make up slightly less than nine per cent (214,000 persons) of the total number of earnings-related pension insured.
The work input of the self-employed affects the confirmed income
The confirmed YEL income form the basis for insurance. The confirmed income must correspond to the work input of the self-employed person. The pension amount and insurance contribution are calculated on the basis of the confirmed income.
According to law, the confirmed income under YEL must correspond to a wage that would be paid if the work of the self-employed was carried out by another, equally competent person in place of the self-employed, or otherwise corresponds to such compensation that, on average, equals the work insured under YEL. The pension provider uses a calculation service to determine a recommended confirmed income for the self-employed. The recommendation aims to ensure a correct level of the confirmed YEL income for the self-employed person.
However, the income of the self-employed person cannot be set any higher than 194,750.00 euros (in 2023). The Finnish Centre for Pensions prepares income instructions and provides minimum recommendations for YEL earnings depending on profession.
By application of the self-employed person, the pension provider confirms the YEL earnings that form the basis of the pension and insurance contribution. If there are changes to the work input of the self-employed person, they will agree on new earnings together with the pension provider.
The confirmed income that forms the basis of the self-employed person’s pension insurance also affects other social security of the self-employed. The amounts of unemployment compensation, sickness allowance and parenthood allowance are calculated based on the self-employed person’s confirmed income. A self-employed person must have valid YEL insurance while drawing a partial old-age pension if the self-employment continues.
The self-employed finance their pensions on their own
The self-employed finance their pensions by paying the YEL insurance contribution, which is determined based on the average TyEL contribution. In 2023, the insurance contribution for self-employed persons under the age of 53 or from the age of 63 to 67 years is 24.1 per cent of their confirmed YEL income. For the self-employed from the age of 53 to 62 years, the contribution is 25.6 per cent. The insurance contribution is fully tax-deductible.
The newly self-employed get a 22 per cent discount on their insurance contribution.
The discount is granted irrespective of age, and applies to the first 48 months of self-employment. If the first period of self-employment lasts for less than 48 months, the discount may also be granted for another period of self-employment (but for a total of 48 months).
The State participates in the financing of pensions for the self-employed. There are no funds collected in the pension scheme of the self-employed, which means their pensions are based on a pay-as-you-go (PAYG) scheme.
Earnings-related pension contributions, less the administrative costs, are used to cover the pension expenditure of the year in question. The State pays the remaining share. In 2022, the State’s share was 30 per cent of the pension expenditure for the self-employed .
Insurance contribution affects pension amount
The YEL insurance contribution is flexible, which means that the self-employed person can choose to temporarily pay a higher or lower insurance contribution. When business is going well, the self-employed can improve their pension security by paying a higher (10–100%) insurance contribution without having to raise their confirmed income under YEL permanently.
If times are bad, the contribution can be decreased by 10–20 per cent. Although there is no change to the confirmed income, the pension accrues based on the income that the paid insurance contributions are based on.
Pension for the self-employed always accrues based on YEL contributions paid. If the self-employed person has neglected to pay the contributions and if the contributions have expired, the YEL pension of the self-employed will be reduced.
If the annual YEL contributions have been paid only in part, the pensionable earnings of that year will be calculated in relation to the paid contributions. If the YEL contributions have been left unpaid for a whole year, the earnings of that year will be worth zero (0.00) euros when the pension is calculated.
Finnish Centre for Pensions monitors
The Finnish Centre for Pensions monitors the earnings-related pension insurance of the self-employed. If the self-employed person has failed to take out insurance, the Finnish Centre for Pensions will encourage them to correct the neglect within a reasonable time frame. If the self-employed person does not heed this admonition, the Finnish Centre for Pensions will take out YEL insurance on behalf of and at the expense of the self-employed person.
The self-employed person may take out insurance retroactively for the current and three previous years. It is not possible to accrue pensions in retrospect for longer periods than that.