The self-employed person’s pension insurance
If you are an entrepreneur you must usually take out pension insurance for self-employed persons (YEL) or pension insurance under the Farmers’ Pensions Act (MYEL). Your income determines how much you will pay in premiums now and how big a pension you will receive in the future. Pension insurance provides not only the state pension but also, for example, cover in case you are unable to work or a pension for those family members who outlive you.
Under the Self-Employed Persons' Pensions Act you have to take out pension insurance for self-employed persons if
- you are between the ages of 18 and 67.
- your business has been operating for at least four months
- your income during the year exceeds the minimum limit for pension insurance, which has been around EUR 8,000.
Note that the obligation to take out pension insurance also applies to part-time entrepreneurs if they fulfil the above-mentioned criteria.
If you are the recipient of an old-age pension and are an entrepreneur, pension insurance is voluntary. Any voluntary insurance will also contribute to your old-age pension.
You are considered to be an entrepreneur if you work for your own company and one of the following conditions is met:
- you are a private trader, a partner in a general partnership or a general partner in a limited partnership
- you hold more than 30%, or, with your family members, more than 50% of a limited liability company’s shares or their voting rights
- you are in a management position in a cooperative and you enjoy there more than a 30% alone, or, with your family members, more than a 50% control.
If you are an ordinary entrepreneur, take out pension insurance for self-employed persons (YEL). If you are a farmer, forest owner, professional fisherman or reindeer herder or receive a grant or a scholarship, take out pension insurance under the Farmers’ Pensions Act (MYEL).
If your income is under the lower threshold but you satisfy the other requirements for insurance, you can take out pension insurance voluntarily. You can also take out voluntary insurance if you are on a state pension and you run a business.
You can obtain a YEL insurance from an employment pension provider. Pharmacy and forest sector entrepreneurs have the option of taking out their insurance from the pension funds that provide employment pension services for these sectors. You can take out pension insurance under the the Farmers’ Pensions Act (MYEL) with the Farmers' Social Insurance Institution Mela. Note that you cannot substitute any kind of voluntary pension insurance for pension insurance under the Self-Employed Persons' Pensions Act.
Take the initial steps in acquiring pension insurance for a self-employed person within a period of six months from the time your business started up, if you meet the conditions provided in the Self-Employed Persons' Pensions Act. If you do not take out insurance until later, you will have to pay a default penalty in addition to the premium.
The Finnish Centre for Pensions oversees matters connected with work pension insurance. If you have not taken out pension insurance even if you should have, the Finnish Centre for Pensions may ask you provide an account of your obligation to take a pension insurance afterwards and tell you to take out pension insurance for self-employed persons, if necessary. If you still fail to take out insurance within a reasonable period, the Centre make take out a policy for you, with retroactive effect. Note that, in such a case, the insurance premium for the default period may be as much as double.
Your pension insurance premium now and your pension in the future depend on how much your income is.
Note that almost all social security payments are also calculated on the basis of your income. Such benefits include the sickness allowance, maternity, paternity and parental allowances, rehabilitation subsidy and unemployment benefit paid by Kela.
Income corresponds to the salary you would have to pay per annum if someone as professional as yourself were doing the work you do. The amount, therefore, is not necessarily the same as what you earn yourself.
Income for the purposes of YEL is confirmed by an employment pension provider when you take out insurance. Your income must reflect the amount of work you do and the quality and scope of the entrepreneurial activity. An employment pension provider will decide your pension insurance premium on the basis of your income. The premiums are the equivalent of roughly 25% of your income. Note that you may deduct your pension insurance premiums in either your personal or your company’s tax return.
If you are a budding entrepreneur, you will receive a 22% discount on your pension insurance contributions for a four-year period. If your business activities end before the four years have passed, you may use the reductions for the remaining period in a later enterprise.
The more you pay in pension insurance premiums, the bigger your pension will be. Your pension will accrue, depending on your age, at a rate of at least 1.5% of your annual income.
Both the pension insurance arrangements for self-employed persons, YEL and MYEL, guarantee you pension cover when you retire.
If your ability to work has deteriorated, you can use your pension insurance for self-employed persons to participate in vocational rehabilitation. If you are completely unfit for work, you can receive a disability pension.
Pension insurance for self-employed persons also provides the opportunity to switch to a partial early state pension.
If you die, your family has the right to a survivor’s pension. If you are MYEL-insured, if you die your family can also apply for compensation under a group life insurance policy.
As an agricultural entrepreneur, under MYEL insurance you are also entitled to insurance against occupational accidents and diseases and a MELA sickness allowance. If there are animals on your farm, you have the right to farm relief.
Further information about YEL insurance is available from your employment pension provider and the Centre for Pensions. For MYEL insurance contact the Farmers' Social Insurance Institution.