A reform of the Self-Employed Person’s Pension (YEL) system was prepared during 2022 and caused much discussion, particularly among small business owners. The reform came into force at the beginning of 2023, but not as originally planned. Before issuing a decision, the Finnish Parliament took account of small business owners’ concerns about disproportionate increases in contributions and amended the reform before its approval.
What actually changed?
Pension institutions determine the YEL contributions based on the self-employed person’s YEL income. From the beginning of 2023, the YEL income is based on an overall estimate. In addition to the median salary, the estimate is based in a balanced manner on other factors such as the amount of the self-employed person’s work input, the scope of their business operations, their professional skills and information describing the value of their work input. The YEL income can therefore be lower or higher than the median salary, depending on the nature and scope of the self-employed person’s business operations.
In addition, in the case of newly self-employed persons, the profitability and solvency of their business operations are also taken into account. The YEL contributions were previously reviewed mainly at the request of the self-employed person. After the reform, pension institutions have an obligation to review a self-employed person’s income every three years. Pension institutions may increase the YEL income by no more than EUR 4,000 at a time and no more than twice during the review period, meaning that the maximum increase is EUR 8,000. In other words, the increase in small business owners’ contributions will be small, and the positive impact on their pensions will therefore be small as well. Rather than being an actual reform, the YEL reform is a mainly a further specification of the applicable law.
Employment pension (TyEL) companies will make changes to their invoices from the beginning of 2023 onwards. Each company will determine its management fee, which will affect its monthly TyEL invoicing. The management fee is a TyEL invoice element affecting the implementation of employment pensions and insurance management. It is based on the pension company’s business expenses. In practice, the management fee indicates how effectively the pension company operates. There will be no major changes in payments, but differences will arise between employment pension companies and customer groups.