Finnish earnings-related pension provider Veritas has urged the government to “revamp” the self-employed (YEL) pension system, arguing that it has become “outdated” following recent changes in the workforce.

Veritas director of pension and insurance services, Staffan Aberg, said that while the YEL system was created to improve the social security of entrepreneurs and secure their future retirement, it has not evolved with changes in working life and entrepreneurship.

Aberg noted that the Finnish Centre for Pensions former CEO, Jukka Rantala, is currently investing, on behalf of the Ministry of Social Affairs and Health, how the YEL system could be developed.

However, he stressed that expectations for the ongoing YEL investigation are high, pointing out that many entrepreneurs are particularly upset about the definition of YEL earned income, to which Rantala is trying to find alternatives in his investigation.

Aberg explained that the current definition of YEL earned income creates friction, as YEL earned income corresponds to the salary that would be paid if the entrepreneur's work was performed by another person with the same professional skills instead of the entrepreneur.

“I cannot say that this is an easy problem to solve,” Aberg admitted, continuing: “The earnings-related pension industry has suggested that we should move to an income based on the actual income of the entrepreneur.

“This would eliminate the current “fictitious” nature of income and create a YEL insurance system that works more in real time.

“Even in this model, however, there are many details to consider. It is important to ensure that the system does not excessively control the decision-making and freedom of choice of entrepreneurs, for example when it comes to choosing a company form.

“Finland needs different types of entrepreneurs and business forms, and an equal pension system must be created for them – a system that is worthy of our entrepreneurs.”

Aberg argued that the situation is further complicated by those entrepreneurs who run their business either as a sideline job alongside a paid job or otherwise on a part-time basis.

In addition to this, he pointed out that the number of light entrepreneurs has increased in recent years, although this has not been reflected in the YEL system.

Currently, small business owners do not earn any pension as long as their income is below the lower limit for YEL insurance.

Given this, Aberg argued that reforms are needed that take into account the changes that have occurred in entrepreneurship.

“The income of the entrepreneur and the results of the business operations vary. It is important that everyone is covered by the same level of security and that all work is insured as equally and competitively as possible,” he stated.

“This will enable entrepreneurs to conduct their business as freely as possible. At the same time, it will also increase the likelihood that the business will be meaningful and profitable.”

Echoing previous calls from the Elo CEO, Carl Pettersson, Aberg also suggested that the possibility of funding should be investigated, arguing that the YEL investigation should map out different future funding alternatives.

“This is also not an easy nut to crack, as capital is required to start a funded system,” he acknowledged.

However, Aberg argued that this should not be seen as too big an obstacle, but rather different alternatives should be considered.

“This could also improve the confidence of entrepreneurs in the pension system,” he said, concluding: “It is often said that entrepreneurs are the backbone of our country. We must ensure that this backbone can support Finland in the future.

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