Finnish Centre for Pensions corrects flaw in YEL income calculator

The Finnish Centre for Pensions has said it will work with the Tax Administration to modify the calculation service it uses for its YEL income recommendations.

We previously reported on the pension providers’ YEL income reviews and the problems the providers have observed when conducting YEL income reviews.

When setting recommended YEL incomes, the pension providers use a calculator provided by the Finnish Centre for Pensions to assist them. This calculator has been found to have shortcomings.

“When it comes to joint owners, the calculator has not always recognized what work is actually done by the business owner. It is possible that in such cases the person in question is not actively running the business. A correction of this problem is under way,” Harri Kangaskoski, Insurance Director at pension provider Elo, said in that article.

The Finnish Centre for Pensions says it is changing its limits for part-ownership to only consider information on turnover for the companies where an entrepreneur owns a significant share.

The Centre admits that some turnover data has had to be corrected. In some cases, the YEL income recommendation given by the calculator also included turnover data for companies where the entrepreneur did not own anything, but merely held a leadership role, such as serving on the board of directors.

“For example, a business owner has a YEL policy, the YEL income of which has been reviewed, but the person is also involved in another company, but only sits on the board. The turnover of this other company has been needlessly included in the YEL income recommendation,” Anniina Alaluusua-Listola, a lawyer at the Finnish Centre for Pensions, says.

Change in next year’s data

The YEL income calculator was launched this year when the pension providers were obliged by law to review YEL incomes. This summer and early this autumn, the pension providers have reviewed smaller YEL incomes. The review round of YEL incomes will continue next year, focusing on YEL incomes of €15,000–€25,000.

The Finnish Centre for Pensions says the YEL income calculator is an aid “which makes confirming YEL incomes simpler and more consistent”. The calculator recommends a YEL income based on information registered about the business owner.

The business owner can also provide information themselves, such as about the labour they contribute or the extent of their operations. The pension provider must consider this information when evaluating the YEL income.

The calculator is based on the median salaries of full-time private-sector employees working in the entrepreneur’s sector. To evaluate the extent of the business operations, the calculator also places the business owners’ turnover figures into proportion with other businesses in the sector.

The Finnish Centre for Pensions says it is collaborating with the Tax Administration to modify the calculator: the calculator will only include companies where the entrepreneur owns a significant share. This change will take effect when reviews are made next year.

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