Nine facts about the YEL reform
Some false information has spread about the reform of the Entrepreneur’s Pension Act (YEL). A specialist at Suomen Yrittäjät, the Finnish SME association, explains the changes.
Pension providers have begun reviews of YEL incomes in line with the Entrepreneur’s Pension Act. Janne Makkula, a vice president at Suomen Yrittäjät, explains the legislative amendments in a recent blog post.
The amendments to the Entrepreneur’s Pension Act have led to a lot of discussion among business owners. Makkula reminds business owners that the Financial Supervisory Authority is behind the amended Act. The FSA previously intervened in pension providers’ procedures when setting YEL incomes. As a result, the government of Sanna Marin (SDP) decided to make changes to the Act.
“As a result of advocacy by Suomen Yrittäjät, Parliament amended the Bill presented by the government: YEL incomes will be reviewed during a long, statutory transitional period, and with new business owners, in particular, the fact that operations are not always immediately productive in spite of the amount of work put in will be considered,” Makkula writes in his blog post.
We have gathered information about YEL matters on one website.
In his blog post, Makkula wants to correct misinformation about the YEL reform that has been circulating on social media. He lists the points which he considers essential in the reform.
1. The FSA intervened in the process which pension providers used when fixing YEL incomes. Without the legislative amendment, some business owners would have seen their YEL incomes rise regardless, but without a transitional period and without their entire situations being considered.
2. The legislative amendment passed by Parliament in the autumn of 2022 improved the situation of business owners compared to the previous text of the Act. The changes were not unreasonable. If Parliament had not changed the Bill in September 2022, many business owners’ YEL income would have risen more quickly.
3. A business owner has never had the statutory right to decide on their level of YEL pension insurance by themselves.
4. A pension provider may not raise YEL premiums by thousands of euros a year without the business owner’s consent. A YEL income may be raised by a maximum of €4,000 the first time. In terms of premiums, this means an increase of around €80 per month. YEL premiums are tax deductible, meaning the net cost per month is around €50. The same maximum limit also applies on the second inspection round, which takes place three years after the first one. Without the legislative amendment, there would have been no limits or transitional periods.
5. The definition of YEL income has been the same since 1970. It did not change when the amended Act came into force at the start of 2023. Since the Act has been in force, YEL income has been based on the salary that should reasonably be paid if an employee were hired to do the business owner’s work.
6. Even before the Act was amended, pension providers were entitled to review a YEL income if they considered it did not reflect the value of the entrepreneur’s labour input.
7. As a business owner, you should read your pension provider’s review of your YEL income carefully. If you do not consider that the value of your labour input corresponds to the new figure after the review, you may present your own view of the value of your labour input and key business figures. The pension provider must take the information you provide into consideration.
8. When making its final decision, the pension provider must consider all the information it has received about the value of the business owner’s labour input. It must evaluate how important this information is in setting the YEL income.
9. The figure the calculator gives is not a statutory YEL income. It is merely the starting point for a conversation. In addition, when a pension provider fixes a YEL income, it must consider all the factors that contribute to the business owner’s labour input and its value.