News 13.12.2022

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.

The Parliament approved the government’s proposal to amend the Self-Employed Persons’ Pensions Act. The reform is not large, but it adds more detail to the current act. 

The goal of the reform is to improve entrepreneurs’ security and harmonise how self-employed persons’ YEL income is determined in different pension insurance companies. The reform focuses on how YEL income under the self-employed person’s pension insurance is determined and how pension companies adjust it.

The concept of YEL income remains unchanged 

Even after the reform, YEL income will mean the salary that would reasonably have to be paid to a person with comparable professional skills to perform a self-employed person’s entrepreneurial activities. One type of basic information used to determine the YEL income is the median wages of employees in the sector in question, but pension insurance companies must use overall consideration when determining the YEL income.

The self-employed person’s opinion is still heard, i.e. the YEL income is determined on an individual basis. When the pension insurance company confirms the YEL income, the determination must also take into account other information related to the value of the entrepreneur’s work input, such as the amount of work, the professional skills of the entrepreneur and the scope of the entrepreneurial activities. 

YEL income will be reviewed regularly 

The biggest change in the YEL reform concerns pension companies’ obligation to adjust entrepreneurs’ YEL income regularly. To date, self-employed persons’ YEL income has usually been updated in two situations: when the self-employed person has applied for a change to their YEL income and when the pension company adjusts the YEL income with the wage coefficient at the start of each year. Next year the wage coefficient will raise the YEL income by 3.79 per cent. 

When the reform enters into force at the start of 2023, pension companies will begin to review self-employed persons’ YEL income level regularly every three years. The pension company will provide the self-employed person with a written proposal on the level of YEL income after the review. The entrepreneur can complement the proposal by providing supplementary information.

Ilmarinen will begin reviewing YEL incomes in April or May 2023. The reviews apply to YEL insurance in force on 1 January 2023, which have a YEL income of less than EUR 15,000 per year and no significant changes have been made to the YEL income in three years. 

“This ensures that the YEL income matches the development of the entrepreneurial activities and that the entrepreneur’s cover is at the right level,” says Minna Hakkarainen. 

“It is important for the entrepreneur that their YEL income is at the right level because it serves as the basis for their old-age pension and other social benefits such as parental allowance and sickness allowance. Pension insurance also offers security during tough times, for example if the self-employed person loses their work ability or a family provider dies,” she adds. 

Decisions will require better grounds 

As of the start of 2023, pension companies must also provide better grounds for their YEL income decisions and the information used. This will make it easier to understand how the YEL income is determined. 

The pension company will not benefit financially from the increase in the level of YEL income or from higher YEL contributions, because the YEL contributions it collects are used to pay the pensions of self-employed persons who have retired. 

“Our goal is to improve the pension security of our self-employed customers. Self-employed persons deserve the same level of social and pension security as employees. We help our self-employed customers set the right level of YEL income at different stages of their career,” says Hakkarainen. 

Underinsurance increasing 

It was necessary to amend the act because the YEL income of an increasing number of self-employed persons did not correspond to the true value of their work input; many entrepreneurs have a YEL income that is lower than that required by the current act. This results in low social and pension security for the entrepreneur and causes them to fall behind other population groups. According to a survey carried out by the Finnish Centre for Pensions, underinsurance has increased especially in recent years.