Finnish pension system in a nutshell
Finland has one of the best pension systems in the world - and that’s a fact. But if you’re starting a business in Finland, you might be wondering why it’s mandatory for entrepreneurs to take out pension insurance. Or for employers to get pension insurance for their employees? We are here to help you!
There are two main types of pensions – the national pension and the earnings-related pension. The latter is a pension that you accrue based on your work. This applies to both employees and entrepreneurs. In Finland, earnings-related pensions accrue for nearly all gainful employment.
The longer you work and the later you retire, the higher your pension will be. Similarly, the higher your earnings or your income from self-employment are, the higher your pension will be.
Pension system provides security
The national pension and its supplement, the guarantee pension, are there to secure basic livelihood in case the earnings-related pension is very small or doesn’t exist. Pensions are a part of social security in Finland, and voluntary pension insurances are relatively uncommon.
The national pension covers all people residing in Finland if they meet the minimum requirements relating to time of residence. Earnings-related pensions cover people with earned income. Your Finnish pension or rehabilitation benefit can also be paid to your foreign bank account.
The pension system is meant to provide income security in old age, as well as in the event of disability or the death of a family's breadwinner. This means that the pension security entails, for example, old age pension, disability pension and a survivor’s pension.
Earnings-related pension encompasses both employees and entrepreneurs. Employees are insured under TyEL, an insurance which their employer takes out. Self-employed people are insured under YEL, which they take out for themselves. These insurances are a part of the Finnish social security, and they are mandatory.
Pension for entrepreneurs
If you are an entrepreneur, then YEL insurance is the basis for both your pension and social security. With each insurance contribution, you grow your pension and improve your other social security benefits. The insurance is mandatory for entrepreneurs, and you cannot replace it with a voluntary pension insurance.
As the insurance is statutory, the insurance contribution is the same in all pension insurance companies. The contribution is a certain percentage of your YEL income. And the percentage is confirmed annually by the Ministry of Social Affairs and Health.
Take out YEL insurance if you meet the following five conditions:
- You are aged between 18–67.
- You work as a self-employed person for at least four consecutive months.
- Your YEL income is at least EUR 8,261.71 per year (in 2022).
- You work in your company.
- You live in Finland.
TyEL – pension security for employees
As an employer, you need to take out pension insurance for your employees. This insurance is known as TyEL insurance. If you employ at least one person on a permanent basis and pay them a certain minimum amount in wages, you will need to take out TyEL insurance. Even if you are only a temporary employer, you must pay the insurance contributions.
The TyEL contribution is a percentage of the salaries you pay to your employees. But you do not pay the contribution alone; employees also pay their share of it.
Take out TyEL insurance when your employee meets the following three conditions
- he or she is in an employment relationship,
- he or she is aged between 17–67 and
- you pay him or her at least EUR 62.88 per month in 2022.
One of the best pension systems in the world
The Finnish pension system might not be all that simple, but it is reliable. In fact, Finland has one of the best pension systems in the world. The Mercer Global Pension Index (2021) ranks Finland’s pension system number one in the world for transparency and reliability, and number seven in the overall score.
Ilmarinen is Finland’s largest and oldest private earnings-related pension insurance company. We have taken care of our customers’ pensions since 1961, and as a mutual pension insurance company, we are wholly owned by our customers. Our task is to ensure that our customers receive the pension they earned from work. We offer employees’ and self-employed persons’ pension insurance for employers and entrepreneurs operating in Finland.
YEL reform enters into force at the start of next year
The Self-Employed Persons’ Pensions Act will change at the start of the year: YEL income will be determined in more detail and adjusted more often. “Self-employed persons deserve the same level of pension and social security as employees. The reform will help achieve this,” says Minna Hakkarainen, Ilmarinen’s Director, Insurance Services.
Most frequently asked questions on the YEL reform
What questions are self-employed persons asking about the Self-Employed Persons’ Pensions Act (YEL) reform? We assembled all of the questions most frequently asked by self-employed persons. The expert for the article is Ilmarinen’s Director, Insurance Services, Minna Hakkarainen.
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