Disability pensions under different pension acts

The experience rating model of disability pensions applies to private sector and state employers. In both systems, the company’s experience rating is determined by comparing the disability pension expenditure of the companies with the average level.

In 2018, the average disability pension component is 1.0 per cent of the total TyEL pension contribution.

Experience-rated contribution of employer with insurance contract

The amount of the disability component of a company’s TYEL contribution is based on, among other things, the size of the company. The size is determined on the basis of the company’s insured employees’ wage bill two years back. When the wage bill exceeds the limit of nearly 2 million euros, the disability component of the TyEL contribution is also affected by the number of disability cases in the company over the past two years.

To determine the disability contribution component, large companies are divided into contribution categories based on the number of disability pension incidences in the company over the past two years. There are 11 contribution categories depending on the size of the disability risk. Each category contains a different-sized experience-rated contribution.

The contribution category of a company depends on its calculated risk ratio. The risk ratio means the ratio of the funded pension expenditure of new disability pensions to the average theoretical disability pension expenditure under TyEL according to the risk.

The risk ratio and the theoretical pension expenditure are calculated separately for each age cohort. This means that the disability rate of a company’s employees of a certain age is compared to the average disability rate of people of the same age. Partial disability pensions are also included in the calculation while cash rehabilitation benefits, rehabilitation allowances and other rehabilitation costs are excluded when calculating the risk ratio.

Experience-rated contribution of employer with insurance contract

Contribution category Average risk ratio Contribution category coefficient Average contribution of contribution category, relative to wage, %
11 5 < 5.50 5.50
10 4.00-4.99 4.50 4.50
9 3.00-3.99 3.50 3.50
8 2.50-2.99 2.75 2.75
7 2.00-2.49 2.25 2.25
6 1.50-1.99 1.75 1.75
5 1.20-1.49 1.35 1.35
4 0.80-1.19 1.00 1,00
3 0.50-0.79 0.65 0.65
2 0.20-0.49 0.35 0.35
1 > 0.20 0.10 0.10

A company’s contribution category is determined based on the realised average risk ratios of the previous two years. The Ministry of Social Affairs and Health annually confirm the experience-rated contribution coefficients along with the average risk ratios of the different contribution categories listed in the table above. The figures in the table above have been confirmed for 2018.

The lower the disability pension costs of a company is, the lower is its contribution category and the amount of its disability pension contribution. However, the age distribution of the employees does not affect the determination of the contribution category since the pension expenditure is reviewed separately for each age cohort.

Contribution categories are determined only for large employers; risk ratios required to determine the contribution categories are not calculated for small-sized employers. If the employer’s payroll is slightly below two million euros, or if the employer’s risk ratio deviates less than 20 per cent of the average TyEL disability risk (that is, if the employer belongs to contribution category 4), the employer’s TyEL contribution is a fixed percentage of the payroll of its insured employees.

A new employer whose payroll for its insured employees is slightly higher than two million euros pays a contribution according to the basic contribution category, that is, contribution category 4, for the first few years. A company’s contribution category is checked annually.

Under certain conditions, it is also possible to take out TyEL insurance from an earnings-related company pension fund or industry-wide pension fund. In that case, the costs of disability pensions are the sole liability of one employer. Alternatively, the costs can be divided between the employers who have signed up with the company pension fund or the industry-wide pension fund.

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Disability contribution of employer with MEL insurance

Like the TyEL contribution, the earnings-related pension contribution of a large employer insured under the Seafarer’s Pensions Act (MEL insurance) is affected by the disability pensions granted to the employer’s own employees via the excess contribution.

The employer’s excess ratio and the risk ratio are calculated in the same way as for the TyEL contribution. The MEL insurance contribution includes a rebate or an additional contribution, depending on the risk and excess ratios. This change came into effect in 2016 at the same time as the Seafarer’s Pensions Act was reformed. It affected contributions for the first time in 2017. The excess contribution of a shipping company affects its pension contribution in full if the employer’s payroll is over 22 million euros and partial if the payroll is over 2.3 million euros. The disability pensions granted in 2015 affect the excess contributions of 2017. The excess contribution will be fully implemented in 2018, when the disability pensions granted in 2015 and 2016 will affect the contribution.

Disability risk contribution in State’s pension contributions

As a rule, the experience rating model of the State’s disability pension contribution resembles the scheme under TyEL. The size of the employer is considered when determining the disability contribution of state employers. It is also taken into consideration when determining the employer’s share of the contribution based on the experience rating model.

Employers with a partial or full excess contribution are rated into contribution categories (1-11) based on their disability risk, which is calculated for each employer based on the realised risk ratio for the previous two years. The employer’s contribution category is determined based on the realised average risk ratios of the previous two years.

Contribution categories in the disability contribution component of the State’s pension contribution

Contribution category Average risk ratio of previous two years Contribution category coefficient
11 4.00 < 4.50
10 3.00-3.99 3.50
9 2.00-2.99 2.50
8 1.50-1.99 1.75
7 1.20-1.49 1.35
6 0.80-1.19 1.00
5 0.60-0.79 0.70
4 0.40-0.59 0.50
3 0.20-0.39 0.30
2 0.10-0.19 0.15
1 > 0.10 0.05

 

The contribution category is affected by the disability and partial disability pensions, as well as the cash rehabilitation benefits or the partial cash rehabilitation benefits that have become disability or partial disability pensions and partial disability pensions that have become full disability pensions. The disability risk contribution also includes the cash rehabilitation component, which is used to cover the unfunded parts of the annual cash rehabilitation benefit expenditure. The cash rehabilitation benefit contribution is the same percentage of the payroll for all employers, regardless of their excess contribution and contribution category.

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Contribution for early retirement expenses of Keva’s member corporations

Keva’s member corporations pay an early retirement contribution component when their employee gets a disability pension or a cash rehabilitation benefit for the first time. The contribution is divided between Keva’s member corporations based on the early retirement pension expenses and wage sums. The employee’s age does not affect the amount of the early retirement contribution component. For small- and mid-sized employers this contribution rate was 1.0% in 2018.

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