For many entrepreneurs and self-employed, one of the main sources of concern are the social benefits to which they are entitled and their future pension.
Since their contribution system differs in most countries from the general one that the administration applies to employed workers, it is very important that people who have their own business know the legal procedures that affect the amount of their social benefits and their future pension, as well as the tools that allow them to calculate these amounts.
In Finland, entrepreneurs have at their disposal the YEL insurance, which works as a safety net for the self-employed workers, while allowing over the years to adjust contributions in order to increase coverage, for example in the event of accident, illness or unemployment, and to obtain the amount of the desired pension when it is time for retirement.
Pension experts emphasize that this is another very important aspect of YEL contributions. Elo's pension insurance specialist Anton Ropa explains that YEL income has a direct impact on the amount of the pension, as well as the amounts of public benefits that the entrepreneur will receive from the Finnish Social Security (Kela) in the event of unemployment, sickness or paternity leave, for example.
"The contributions to YEL insurance are much more than pension insurance, because the entrepreneur's level of social security depends on it," Ropa stresses.
Calculate YEL income
In Finland, the YEL insurance is mandatory for entrepreneurs if they exceed a certain number of annual premiums. For 2021, the Finnish pension authority has set its lower limit at 8,063.57 euros or 672 euros per month, which means that all entrepreneurs whose YEL income exceeds that amount must contribute to the YEL system.
YEL income is therefore the key for entrepreneurs to access social and pension benefits, but how should YEL income be calculated? According to Ropa, YEL income should be as high as the estimated value of the work the entrepreneur does for the company.
And how to measure this value? A good way to do this can be by calculating how much an entrepreneur believes that an efficient employee should earn for doing the same job that he or she does.
Once the annual work value has been calculated, the entrepreneur can divide it by twelve and obtain the ideal monthly amount for their contribution. And the result, once paid, determines the amount of social benefits and the future pension.
Adjust the amount of the pension
According to the current Finnish Pension's Act, with some specific exceptions, the pension accrual rate from YEL income is 1.5% of annual income, regardless of age. In practice, this means that if the annual income level YEL is 10,000 euros, the pension will accumulate by 1.5% throughout the year and it will be paid after the retirement day.
However, entrepreneurs have plenty of room to improve their future pension by increasing their YEL income. Basically, they are entitled to change the level of YEL income as many times in the year as they want.
This is something that may seem like an expense for younger entrepreneurs, for whom the word retirement still seems a bit distant. Therefore, some tend to underinsure and use the lower limit as the basis for YEL earnings. But as their entrepreneurial career progresses and the years go by, many of them will have good moments, in which they will surely appreciate the advantages of improving the amount of their pension and social benefits.
That is when many self-employed people decide to invest a little more to ensure their future.
The Elo calculator
How to calculate the ideal amount of YEL income to have insurance that guarantees the entrepreneur his peace of mind and that of his family?
The pension insurance company Elo has developed a powerful calculator that makes this possible. This tool allows entrepreneurs to enter a few basic data and find out how any possible change in YEL income would affect their pension and estimate the amount of social daily allowances, for example related to different forms of unemployment benefits, accident, sickness or parental leave.