The Finnish earnings-related pensions are mainly financed by pension insurance contributions paid by employers, employees and self-employed persons. In addition, the government provides some support for the financing of pensions for self-employed persons, farmers and seafarers. Moreover, through the employer’s contribution, the government is responsible for paying the pensions of State employees. Earnings-related pensions are not financed from government funds in any other respect.

The statutory earnings-related pension contributions are collected in proportion to the wages paid to employees. In the private and public sectors, pension contributions are paid by employees and employers together. By contrast, self-employed persons and farmers pay their pension contributions themselves on the basis of their confirmed income.

The size of pension contributions in different sectors, and the criteria for determining them, vary depending on which Pension Act is applied. The main points of the various Acts are explained below:

Private sectors

The negotiations on earnings-related pension contributions in the private sectors are conducted by the central labour market organizations representing the two groups that finance earnings-related pensions, i.e. employers and employees.

The central labour market organizations hold talks about the average level of the annual pension contributions, for either one or more years at a time. In accordance with the general practice in the insurance sector, the earnings-related pension contribution is determined in advance for each year.

On the basis of the outcome of the negotiations, the working group of actuaries in the service of pension insurance companies – known as the TELA Calculation Criteria Section – presents an application for the following year’s contributions to the Ministry of Social Affairs and Health. The Ministry ratifies the contributions.

In 2018, the earnings-related pension contribution determined under the Employees Pensions Act (TyEL) is on average 24.4 per cent of the wage bill paid to employees. The employee’s share of this is 6.35 per cent for employees under 53 and over 63 years of age and 7.85 per cent for employees who are 53 years or older. The employer’s contribution is on average 17.75 per cent.

Composition of the employee’s contribution

The employee’s share of the contribution is always the same, irrespective of whether the employee is insured with a pension insurance company, a company pension fund or an industry-wide pension fund.

The employees’ contribution was adopted in 1993. Up to that time, the employer was responsible for the payment of all earnings-related pension contributions.

Employees aged 53 years and over pay a higher pension contribution because their accrual rate is also higher.

The employer withholds the employees’ contributions in connection with the payment of wages and pays the entire pension contribution to the authorized pension provider.

Composition of the employer’s contribution

The employer’s contribution is the entire pension contribution minus the employee’s share. However, the contributions of individual employers may vary depending, for instance, on whether the employer has taken out the earnings-related pension insurance with a pension insurance company, a company pension fund or an industry-wide pension fund.

The following factors can affect an individual employer’s contribution: customer rebates specific to each pension company; the employer’s size; and the employer’s cases of disability pension.

The earnings-related pension contribution collected by pension insurance companies consists of the following components:

  • old-age pension component
  • disability pension component
  • pooled component
  • other expenses, such as operating expenses.

All payment components are determined according to their own criteria based on legislation.

An employer that has established a company pension fund or all employers that have established an industry-wide pension fund together determine the size of the contribution according to the expenses of the pension fund. The contribution collected from employers is determined so that, together with investment returns, it is sufficient to cover the fund’s expenses.

Municipal sector

The pension contribution paid by employees in the municipal sector is equal to the contribution in the private sectors. In 2018, the contribution is 6.35 per cent for employees who are under 53 of over 63 years of age and 7.85 per cent for those who are 53 years or older but under 63.

Keva manages pensions in the public sector, and the Council of Keva decides the total contribution of employers and the sizes of the various components for each year. In 2018, the earnings-related pension contribution for employers is on average 21.60 per cent.

The employer’s municipal pension contribution, consists of three components:

  • a wage-based contribution;
  • a contribution based on early retirement expenditure; and
  • a contribution based on pension expenditure.

The wage-based contribution also includes the employees’ share of the contribution.

The State

The pension contribution paid by State employees is equal to the contribution in the private sectors. In 2018, the contribution is 6.35 per cent for employees under 53 and over 63 years of age and 7.85 per cent for employees who are 53 years or older but under 63.

Upon Keva’s proposal, the Ministry of Finance decides on the size of the earnings-related pension contribution paid by State employers. The components for old-age, disability and survivors’ pensions in the employer’s pension contribution are calculated actuarially so that, together with the employee’s average pension contribution, they cover the pension liability arisen in the State’s pension system.

In 2018, the average employer’s pension contribution is 16.88 per cent.

The pension contributions paid by State employers and employees account for about 40 per cent of the annual pension expenses. The remaining 60 per cent comes directly from the State Budget for each year.

The Church

The pension contribution paid by the employees of parishes, the Church, and ecclesiastical societies is equal to the contribution in the private sectors. In 2018, this was 6.35 per cent for employees under 53 and over 63 years of age and 7.85 per cent for employees who are 53 years or older but under 63.

The General Synod of the Evangelical Lutheran Church confirms the criteria for determining the pension contributions paid yearly and ratifies their amounts. The earnings-related pension contribution is based on the wages paid. In 2018, the Church employer’s pension contribution is 21.8 per cent of the wage bill, while that of the Central Church Fund is 27.6 per cent. In addition, parishes are charged a pension fund fee, which is 5.0 per cent of the church tax revenue.

Thus, the contribution collected from the employees and employers totals on average 30.7 per cent of the wage bill.

Seafarers

Each year, the Ministry of Social Affairs and Health ratifies the pension contribution paid in accordance with the Seafarers’ Pensions Act (MEL). Reform of the Act come into effect as of the beginning of 2016, and thereby changes of the pension contribution. Earlier it was so, that employers and employees in the maritime sector paid equal shares of the earnings-related pension contribution. From now on, the share of the employees will respond the share of other private sector employees. Correspondingly the share of the employer grew.

In 2018, the employee’s share of the pension contribution is 6.35 per cent for employees under 53 and over 63 years of age and 7.85 per cent for employees who are 53 years or older but under 63. The employer’s contribution is 13.2 per cent.

In addition, the government participates in the financing of pensions paid to seafarers by paying less than one third of the pension expenditure under the Seafarers’ Pensions Act.

Self-employed persons

In 2018, the contribution paid according to the Self-Employed Persons' Pensions Act (YEL) is 24.1 per cent for self-employed persons under 53 and over 63 years of age and 25.6 per cent for those who are 53 years or older. The increment for self-employed persons 53 years of age or older is based on the change of the accrual rate at that age, in the same way as for employees.

Each year, the Ministry of Social Affairs and Health ratifies the contribution rates referred to in the Self-Employed Persons' Pensions Act. The average YEL contribution corresponds to the average TyEL contribution in the private sectors, excluding the increment applied to persons who are 53 years or older.

Self-employed persons pay the entire YEL contribution themselves. The YEL contribution is calculated as a percentage of the confirmed income that forms the basis of the future pension. The confirmed income is not based on the financial performance of the business; instead, it should correspond to the financial value of the self-employed person’s work input. The Finnish Centre for Pensions has published guidelines to help self-employed persons to determine their confirmed income. [in Finnish]

A new self-employed person setting up a business for the first time is entitled to a reduction of 22 per cent on the YEL contribution for the first 48 months.

Freelancers

A freelancer is considered to be a self-employed person if he or she is working but has no employment contract or is not in public service. Self-employed freelancers are responsible for their own pension contributions in the same way as other self-employed persons.

However, if the freelancer’s work fulfils the criteria of an employment relationship, the freelancer is considered to be an employee. Such criteria are fulfilled if the freelancer works for another person for remuneration under that person’s supervision and control. In that case, the employer is responsible for the freelancer’s earnings-related pension insurance, and the freelancer’s pension contributions are collected in the same way as those of employees in private sectors.

A freelancer can work simultaneously as a self-employed person and as an employee.

Farmers and recipients of grants and scholarships

Farmers pay all their earnings-related pension contributions themselves. Farmers, forest owners, fishermen, reindeer breeders and their families are insured under the Farmers’ Pensions Act (MYEL). In addition, recipients of scientific or artistic grants and scholarships also fall within the scope of MYEL.

MYEL uses two contribution rates: the basic rate and the reduced rate. The rate applied in each individual case is determined according to the confirmed income of the insured. The confirmed income describes the agricultural entrepreneur’s work input. Grant recipients’ income is based on the amount of the grant or scholarship received. More information about the determination of the confirmed income is available on the website of the Farmers' Social Insurance Institution Mela.

The Ministry of Social Affairs and Health ratifies the basic rates determined according to MYEL annually. The basic rates have often followed the corresponding figures determined according to the Self-Employed Persons’ Pensions Act.

In 2018, the earnings-related pension contribution for persons under 53 or over 63 years of age is

  • about 13.01 per cent if the confirmed income is under 26,800 euros
  • about 24.10 per cent if the confirmed income is over 42,000 euros
  • between the above sums, the contribution rises according to a sliding scale.

For persons who are 53-62 years, the corresponding contribution percentages are 13.82 and 25.60.