The YEL reform is moving forward – a proposed freedom of choice model for pension contributions
The Government has reached an agreement in its budget framework talks on changes to the Self-employed Persons’ Pension Act (YEL). Under the proposed model, pension contributions and benefits would be based either on taxable earned income from business activities or on a calculated YEL income, as is the case today.
The government bill is expected to be sent out for consultation around Midsummer.
“It’s great to see the first concrete steps towards an earnings-based model for determining YEL income,” says Tiina Nurmi, Executive Vice President, Insurance and Pension Services at Ilmarinen. “Earnings-related pension insurers have long supported insuring entrepreneurs based on their actual and as real-time earnings as possible.”
The so-called freedom of choice model would enter into force in 2028. Under the new model, the calculated YEL income would need to be at least 50% of your taxable earned income from business activities. The YEL calculator is also set to be further developed.
Other preliminary decisions from the budget framework talks
- The obligation to take out YEL insurance would still be assessed based on your work imput. After that, you could choose your basis for three years at a time. From 2028 onwards, this choice could be made every three years.
- The flexibility model for YEL contributions is also set to change and could become available to new entrepreneurs. It is intended to replace the current discount for new entrepreneurs. Read more about temporary flexibility in YEL contributions.
- The law will include a broader obligation for pension insurance companies to justify how YEL income is determined.
- In addition, the Government will launch a review to improve the efficiency of the YEL system’s implementation and to reduce administrative costs in the future.
Exploring funding for YEL pensions
In the longer term, funding YEL contributions is also seen as important to ensure the sustainability of YEL pensions. The Government will start a study on funding entrepreneurs’ pension contributions and on establishing a dedicated fund.
Read more
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