The Finnish government has outlined plans to reform the self-employed pension scheme (YEL), aiming to improve conditions for entrepreneurship and make starting a business more attractive, but the Finnish Pension Alliance (Tela) has said the plans “fall short”.

Under the proposals, from 2028, self-employed individuals would be able to choose between using their taxable earned income or the current imputed confirmed income model as the basis for pension contributions.

Following a transition period, however, confirmed income would need to be at least 50 per cent of taxable earned income. Only earned income would be included in the calculation, excluding items such as dividend income.

The reform would also introduce greater flexibility, allowing contributions to be paused during periods when sickness allowance is paid and increasing contribution flexibility to 25 per cent. This would replace the existing contribution reductions for newly self-employed individuals.

Preliminary estimates from the Finnish Centre for Pensions and the Ministry of Finance suggested that by 2033, contributions would decrease for nearly 40 per cent of self-employed persons, remain unchanged for over 40 per cent, and increase for around 20 per cent, compared with the current system.

The changes are expected to increase central government pension expenditure by approximately €80m.

Tela senior specialist, Janne Pelkonen, described the announcement as “encouraging” but said the “current implementation falls short”.

According to Pelkonen, the biggest problem is the rise in government spending.

“The government has stated that the YEL reform will increase government spending by approximately €80m per year, even though at the same time the government is seeking to make adjustments to public finances amounting to several hundred million euros.

“The YEL system is already running a deficit of approximately €600m. A solution that increases government spending in general in this economic climate should be viewed critically,” he said.

Pelkonen also pointed to the fact that the reform does not propose any changes to the high minimum threshold for YEL coverage. He believes that lowering the threshold would bring new insured persons under the scope of employment pension coverage, including light entrepreneurs, who are currently often excluded from coverage.

“This would also promote a level playing field between work performed as an entrepreneur and as an employee, as well as among entrepreneurs in today’s changing labour market.

“Lowering the lower limit would have been a good way to strengthen the funding of self-employed pensions. Now this opportunity is being missed,” Pelkonen noted.
In addition, he warned that the administrative burden on both entrepreneurs and pension companies may increase as a result of the reform, but “ultimately it comes down to the entrepreneur’s time and effort”.

Despite the reform, he argued that in the long term, the key structural problem with the YEL system is a lack of funding.

“A gradual transition to a funded system would be the only way to put the system on a sustainable footing, but this would require widespread earnings-based insurance and perhaps even new sources of revenue – not an increasing financial burden on the state,” he concluded.

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