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 2019, the average disability pension component is 0.9 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, %
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 2019.
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.
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 was fully implemented in 2018, when the disability pensions granted in 2015 and 2016 affect the contribution.
Employers’ disability pension contribution of Keva’s member corporations and the State’s pension system
Both Keva’s member organisations and the employers covered by the State’s pension system pay a disability pension contribution as part of the wage-based pension contribution.
The disability pension contribution is determined based on the employer’s disability risk. On average, it is of the same size as the average disability component of the contribution under the Employees Pensions Act. For large employers, the disability pension contribution is determined in full, and for mid-sized employees in part, based on the disability risk of the employer. The disability pension contribution of small-sized employers is of the same size as the system’s average disability pension contribution.
The employer’s disability risk factor is determined based on the disability pensions and cash rehabilitation benefits they pay. The disability risk factor is determined by comparing the ratio of the pay-as-you-go contribution that is calculated based on the employer’s pension expenditure and deducible wage sum with the ratio of the whole system’s pay-as-you-go contribution and deductible wage sum.
When calculating the disability risk factor, the disability pensions and cash rehabilitation benefits that have started during the previous two calendar years, as well as the related pension expenditure for 24 months, are taken into consideration. A partial disability pension or a partial cash rehabilitation benefit paid before a full disability pension or a cash rehabilitation benefit reduces the pension expenditure for the 24 months before the onset of a full disability pension or cash rehabilitation benefit.
The impact of disability pensions and cash rehabilitation benefits on contributions is targeted (relative to earnings) at those employers whom the person worked for during the two years before the year in which the pension started. The age of the employee does not affect the size of the employer’s disability pension contribution.
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