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31.5.2022 18:12

Are you paying YEL contributions based on an income of €20,000 a year? Your pension could be less than €1,000 a month

Even a stated income of €20,000 for YEL pension purposes may not guarantee a business owner a large enough pension. 

The lower limit of stated income used as the basis for YEL entrepreneur’s pension insurance this year is €8,261.71. For the purposes of accruing a pension, paying the minimum does not benefit a business owner, and a significantly higher stated income may accrue a surprisingly small pension.

The pension of a person born in 1990 who started a business now and paid pension contributions based on a stated income of €20,000 every year until the lowest retirement age (on 1 September 2057) would be €781 a month. This is below the current guaranteed pension level of €850 for every Finnish resident. In this case, the pension at the highest retirement age of 70 would be €925 a month.

“YEL contributions paid during an entire career as a business owner could at least partly be for nothing. A business owner contributes to financing the pension system without benefiting from it at all,” Suomen Yrittäjät Labour Market Affairs Manager Harri Hellstén says.

YEL contributions paid during an entire career as a business owner could at least partly be for nothing.

Harri Hellstén

He points out that many entrepreneurs have, however, worked as employees before starting their own businesses, raising their pensions above the levels referred to above.

Suomen Yrittäjät has advocated raising the compulsory minimum stated income for YEL pension insurance to the same level as that for earnings-linked unemployment benefit, €13,573, to ensure more business owners benefit from their YEL contributions.

“If we want old-age pensions to be higher than a minimal security level, then the limit should be raised even higher. Many business owners should raise their stated income for YEL purposes far beyond €20,000 a year to get to a better level than the guarantee pension,” Hellstén says.

Five questions and answers about stated income for YEL pension insurance

1. How do I check what income I have stated for my YEL pension insurance?

You can check your own stated income and accrued pension with your own pension provider. Every pension provider has a good online service nowadays, where you can log in and check how much pension you have accrued.

2. How can I check how much sickness allowance I would be entitled to?

The Kela website has a sickness allowance calculator (in Finnish), where you can enter your stated income for YEL purposes. The calculator will tell you the level of sickness allowance you would be entitled to.

If a business owner’s annual stated income for YEL purposes is below €12,717 in 2022, the sickness allowance will be at the minimum Kela sickness allowance, that is, €29.67 a day (gross). For sick leave days 2–10, the business owner’s YEL allowance could be smaller, with a lower YEL limit of €19.28 a day (as of 2022). From sick leave day 11, full sickness allowance is paid.

3. What level of income should I state for YEL purposes to get enough sickness allowance?

The majority of business owners have insured themselves at a low level. That means that even at best, a business owner can only receive sickness allowance at the Kela minimum, around €30 a day gross. How much is enough depends on the business owner’s circumstances. In 2021, sickness allowance averaged around €58 a day. To achieve that level, a business owner should insure himself or herself by stating an income of €25,000 for YEL purposes.

4. Will I get sickness allowance from the first day I am sick?

A business owner with YEL insurance gets “YEL allowance” following a waiting period of one day. During the nine days after that, a nurse’s certificate is enough to get YEL allowance. For the actual sickness allowance period, that is, after the nine days, a doctor’s A certificate is generally needed.

A nurse can generally prescribe sick leave of up to three days. If a business owner claims YEL allowance for several days, he or she may have to apply for a sick leave certificate up to three times. Each certificate costs, meaning the minimum allowance may not even be enough to certify sick leave.

5. What else does my stated income for YEL purposes affect?

Your stated income for YEL purposes affects all your social security as a business owner such as parental allowance, unemployment security, pension, and possible disability pension. If as a business owner your stated income for YEL purposes is under €12,717 annually (as of 2022), you receive the minimum parental allowance of €29.67 a day (gross).

Pension example source: Elo YEL calculator.

Pauli Reinikainen