Entrepreneur's Pension Insurance (YEL)

Table of Contents

1. Entrepreneur’s Pension Insurance (YEL)
2. Who Needs YEL Insurance?
3. How is YEL Income Determined?
4. How Much Does YEL Insurance Cost?
5. Why is YEL Insurance Important?
6. How to Get YEL Insurance?
7. Sole Proprietors and YEL
8. What Does YEL Insurance Cover?
   • Pension Security
   • Unemployment Security
   • Parental Allowance
   • Family Pension
   • Sickness Allowance and Rehabilitation
9. YEL and the Beginner Entrepreneur’s Discount
10. Summary

Entrepreneur’s Pension Insurance (YEL)

Entrepreneur’s Pension Insurance (YEL) is a crucial part of an entrepreneur’s social security in Finland. It provides security for an entrepreneur’s retirement days and allows for sickness allowance, parental allowance, and unemployment benefits.

Who Needs YEL Insurance?

YEL insurance is mandatory for all entrepreneurs whose annual income is at least 9,010.28 euros (in 2024). This includes light entrepreneurs who operate through invoicing services. YEL insurance must be taken out within six months of starting entrepreneurial activity.

Entrepreneur’s Pension Insurance (YEL) is mandatory when all the following conditions apply:

• You are between 18 and 69 years old.
• Your entrepreneurial activities, such as through an invoicing service, are recurring, meaning you send more than one invoice, and your activities as a light entrepreneur or entrepreneur continue for at least four (4) months.
• Your income is at least 9,010.28 euros over a 12-month period (2024).
• You are not receiving an old-age pension under employment pension laws.

How is YEL Income Determined?

YEL income is not the same as a company’s profit or an entrepreneur’s personal salary. It is an estimate of what would be paid to an external employee for similar work. The YEL income determines YEL contributions as well as future pension and social security benefits.

How Much Does YEL Insurance Cost?

The YEL contribution is based on the confirmed YEL income. In 2024, the YEL contribution is 24.10% of the confirmed income for entrepreneurs under 53 and over 62 years old. For entrepreneurs aged 53-62, the contribution rate is 25.60%. New entrepreneurs receive a 22% discount on contributions for the first 48 months.

Why is YEL Insurance Important?

YEL insurance ensures that entrepreneurs have social security comparable to that of employees. Without YEL insurance, an entrepreneur would not be eligible for benefits such as sickness allowance, parental allowance, or disability pension.

How to Get YEL Insurance?

YEL insurance can be obtained by contacting a pension insurance company such as Ilmarinen, Varma, or Elo. Additionally, many invoicing services, like bisse.fi, offer assistance in arranging YEL insurance.

Sole Proprietors and YEL

Establishing a sole proprietorship is one of the most common ways to start a business in Finland. A sole proprietor is responsible for their own YEL insurance, just like a light entrepreneur. YEL contributions are based on the entrepreneur’s annually reported income and are paid annually. YEL insurance is mandatory if the entrepreneur’s income exceeds the insurance obligation threshold. This insurance not only covers pension security but also the entrepreneur’s social security, such as sickness and accident insurance.

What Does YEL Insurance Cover?

YEL insurance financially secures your future if you are an entrepreneur or light entrepreneur. The insurance affects an entrepreneur’s social security and pension accrual. Here are the key benefits provided by YEL insurance:

Pension Security

YEL insurance allows entrepreneurs to accumulate their work pension. The amount of the work pension is based on the total earnings during the career, both from salaried work and entrepreneurial activities. As an entrepreneur, the work pension accrues based on the YEL income, while in salaried work, it accrues based on salary. As an entrepreneur, the work pension accrues annually at a rate of 1.5 percent of the YEL income. Capital income does not accrue pension benefits.

Unemployment Security

YEL insurance provides financial security if the business ceases and the entrepreneur becomes unemployed. The amount of unemployment benefits primarily depends on the YEL income. Entrepreneurs can also join an unemployment fund and receive earnings-related daily allowance if the YEL income exceeds a defined threshold.

Parental Allowance

Entrepreneurs have the right to parental allowance, just like employees. Parental allowance enables entrepreneurial parents to take time off to care for their newborn child.

Family Pension

Family pension provides financial support to the entrepreneur’s family in the form of a widow’s and child’s pension if the primary breadwinner of the entrepreneurial family passes away.

Sickness Allowance and Rehabilitation

YEL insurance protects entrepreneurs in case of illness. Entrepreneurs can receive sickness or partial sickness allowance when they fall ill, allowing them to recover peacefully. In cases of prolonged illness, entrepreneurs can receive rehabilitation support.

Conclusion

The purpose of YEL insurance is to ensure income during retirement and provide financial security in the event of unemployment and other life changes. The insurance also benefits the entrepreneur’s family through the family pension. The basis for social and pension security is the entrepreneur’s declared income, so it is crucial to report the income at the correct level to ensure adequate social security.

YEL and the Beginner Entrepreneur’s Discount

During the early stages of entrepreneurship, various measures are taken to encourage new business ventures. One significant incentive is the beginner entrepreneur’s discount on YEL insurance. This discount means that insurance companies offer a reduced YEL insurance premium for the first few years.

The discount is designed to alleviate the financial burden on new entrepreneurs and light entrepreneurs in the early stages of their business. The discount can be substantial, and its amount varies annually. The discount is granted automatically when the entrepreneur meets the eligibility criteria. For example, through the insurance company Ilmarinen, a new entrepreneur receives a 22% discount on YEL contributions for the first four years.

Summary

YEL insurance is an essential part of an entrepreneur’s financial security. It provides security for retirement and ensures the entrepreneur’s right to social benefits. For light entrepreneurs, YEL insurance is just as crucial as it is for traditional entrepreneurs, and arranging it is straightforward and hassle-free.