YEL reform increases entrepreneurs’ freedom of choice, but the work is not yet finished
/ Blog
The entrepreneurs’ pension system was established in the 1970s. Since then, the system has been amended several times through incremental changes, but a major update has been long overdue. What makes reforming YEL so difficult? Two factors: money and the diversity of the entrepreneurial field.
From the 1970s to today, the entrepreneurial landscape has changed significantly. The number of solo entrepreneurs has increased by over 60,000 during the 2000s. More and more people are also combining paid employment and entrepreneurship – and this trend appears to be continuing. The pension system has struggled to keep up with this change.
Flexibility and freedom of choice are increasing
The entrepreneurs’ pension system is now taking a step forward, with increased flexibility and freedom of choice in YEL. In the future, entrepreneurs can choose either the so-called earnings model or the overall assessment model as the basis for their insurance. In practice, entrepreneurs will decide whether to base their pension contributions on taxable earnings or on the current YEL income model.
In the pension sector, we have long hoped that fluctuations in business activity would be better reflected in the level of pension contributions and that entrepreneurs’ pension security would be determined as much as possible based on information found in public registers. This way, we could better focus on supporting, advising, and guiding entrepreneurs. In this work, we have a lot to offer our customers.
What kind of impact will the new YEL model have? The new law is expected to lower pension contributions for up to 40% of entrepreneurs. It is essential to note the timing of the change. The reduction in pension contributions will only occur after the law comes into force, but before that, contributions will rise due to YEL income reviews under the current legislation.
YEL is insurance and the foundation of social security
In recent years, the YEL discussion has focused on the level of contributions. Less attention has been paid to what YEL actually offers entrepreneurs. YEL is not just a necessary evil for entrepreneurs; it is insurance and the foundation of their entire social security. In addition to future pensions, it affects, for example, sickness and parental allowances as well as security during the working career. For example, it often comes as a surprise to a young entrepreneur planning to start a family that the level of YEL income determines their income during parental leave. I hope that in the midst of the YEL debate, the importance of insurance coverage is also considered. As pension contributions decrease, so does the level of pension security.
Funding must not disappear from the agenda
Is YEL now ready? By no means, even though important steps are being taken forward. In this round of reform – just like in previous ones – no progress has been made in funding YEL. It is not an easy task, and there never seems to be enough resources for it. Personally, I think we should explore different options for starting funding and be ready to examine various solutions with an open mind. It is clear that funding would start with small amounts and quite slowly, but the essential thing is to get started. I believe this would also strengthen entrepreneurs’ trust in their pension system.
We support entrepreneurs and make changes clear
Elo is Finland’s largest pension insurer for entrepreneurs. We advise and guide entrepreneurs on matters related to their pension security, and we will continue to do so with this reform.
However, it must be said out loud that even after this change, entrepreneurs’ pension security will not be entirely simple. That is why it is essential that entrepreneurs understand how their pension contributions will be determined in the future and when they need to make choices between different models. We aim to explain things as clearly as possible. While contribution reviews will still remain, in our role we will make them as simple and clear as possible for our customers.
