ETK calculates impact of YEL citizens’ initiative on business owners’ contributions

The citizens’ initiative published at the end of February would increase YEL contributions for a large share of business owners. This is the conclusion reached by the Finnish Centre for Pensions (ETK) in its latest publication. The “End unreasonable YEL contributions!” initiative gathered the 50,000 signatures required for parliamentary consideration.

The ETK estimates that the number of YEL-insured business owners would fall by around 32,000 if the initiative were implemented, compared with the current system. At the same time, total YEL contributions paid into the system would increase by around 11%.

Under the model proposed in the initiative, contributions would be based on actual earned income as a business owner. ETK’s calculations show that average income for YEL purposes, known as YEL income, would be higher than under the current system. It would rise from around €27,400 to €35,900 annually.

The Finnish Centre for Pensions notes that these average figures are not directly comparable, as they are based on partly different groups of business owners.

Higher contributions at higher income levels

Under the proposed model, some business owners currently insured under YEL would no longer be required to take out insurance if their taxable earned income fell below the threshold. At the same time, some business owners not currently covered by YEL would fall within its scope if their earned income exceeded the threshold.

If the model proposed in the initiative were introduced, average YEL income would decrease or the obligation to insure would disappear altogether at lower income levels. At higher income levels, both YEL income and contributions would increase.

The calculations are based on actual earned income and YEL income data for 2024. They do not take account of behavioural effects, such as changes in income structures or company forms.

The authors of the initiative include Jari Sarasvuo, Tokmanni founder Kyösti Kakkonen, Hesburger founder Heikki Salmela and National Coalition Party deputy MP Jocka Träskbäck.

Behavioural effects not included

Atte Rytkönen-Sandberg, Director of Labour Market and Business Legislation at Suomen Yrittäjät, the Finnish SME association, stresses that the initiative relies on “static” calculations.

“In some cases, contribution increases would be very substantial. It’s important to stress that the calculations are static and do not account for any behavioural effects. The changes would affect business owners’ behaviour and could have significant impacts on the pension system, tax revenue and social insurance flows.”

He adds that under the proposed model, YEL would be based on taxable earned income, and the final level of YEL income and contributions would only be determined once taxation has been completed.

“This would also increase the administrative burden. Reform of the YEL system must strengthen trust in the system, encourage entrepreneurship and treat business owners equally.”

Are you a Suomen Yrittäjät member yet? Read about member benefits and advantages