Agreement reached on YEL reform – a proposed freedom of choice model for pension contributions
The Ministry of Social Affairs and Health has released a draft government proposal to reform the Self-Employed Persons’ Pensions Act (YEL). Under the proposed reform, your pension contributions and benefits would be based on either your taxable earned income from your most recent completed tax assessment, or a confirmed income (as today) based on an overall assessment of your work input.
After the consultation round, the final proposal will be submitted to Parliament. The reform is planned to enter into force on 1 November 2027, and it would apply to confirmed income from 1 January 2028.
“Taking the first steps toward an earnings-based model is a good start,” says Ilmarinen’s Executive Vice President, Insurance and Pension services, Tiina Nurmi. “Basing insurance on earnings is clear, fair and flexible for entrepreneurs.”
The freedom of choice model would enter into force in 2028
From 2028, entrepreneurs would be able to choose between two alternatives:
- Earnings-based model: The YEL contribution would be based on actual earned income. The pension provider would use the taxable earned income confirmed in the latest tax assessment.
- Overall assessment model (current-type model): The YEL contribution would be based on confirmed income defined as an overall estimate of your work input, similar to today.
In this model, the confirmed YEL income must correspond to at least:- 30% of taxable earned income in 2028
- increasing by 5 percentage points each year
-
reaching a minimum of 50% after the transition period
Option to review every three years
The obligation to take out insurance would still be assessed based on confirmed YEL income determined through an overall assessment. The basis for confirmed income could be changed every three years starting from 2028, with the level of confirmed YEL income reviewed at the same time.
In the overall assessment model, adjustments to confirmed income could be made as at present. In the earnings-based model, switching models would be possible once within a three-year period.
The current possibility to reduce pension contributions by 20% would be increased to 25%. This would replace the current discount for new entrepreneurs.
Read more about temporary flexibility in YEL contributions
What the reform means in practice
The reform would give entrepreneurs more flexibility to choose how confirmed income is determined.
In the earnings-based model, pension contributions would reflect actual income. The pension provider would use taxable earned income confirmed in the most recent tax assessment. For new entrepreneurs, income would be based on an estimate until tax data becomes available.
In the overall assessment model, contributions would continue to be based on estimated YEL income. Taxable earned income would still play a role, as confirmed income must reach at least the defined percentage of earnings after the transition period.
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