Pensions are mainly financed by pension contributions
The Finnish earnings-related pensions are mainly financed by pension insurance contributions paid by employers, employees and self-employed persons. In part, the government also contributes to the financing of earnings-related pensions.
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Pension contribution is based on wage or income
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. The employee’s gender does not affect the amount of the earnings-related pension contribution. Instead, the employee’s age affects the earnings-related pension contribution so that the contribution paid by employees aged 53–62 years is slightly higher and that paid by employers correspondingly slightly lower (See Composition of the employee’s contribution).
By contrast, self-employed persons and farmers pay their pension contributions themselves on the basis of their confirmed income.
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. In addition, a government-funded benefit comparable to an earnings-related pension accrues from the period of care for a child under three years (child home care allowance) and from studies leading to a degree.
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 on this page.
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 2024, the earnings-related pension contribution determined under the Employees Pensions Act (TyEL) is on average 24.81 per cent of the wage bill paid to employees. The employee’s share of this is 7.15 per cent for employees under 53 and over 63 years of age and 8.65 per cent for employees who are over 53 and under 63 years of age. The employer’s contribution is on average 17.34 per cent.
Components of earnings-related pension contributions
The earnings-related pension contribution consists of the following components:
- old-age pension component
- disability pension component
- pooled component
- other components.
All payment components are determined according to their own criteria based on legislation. The need for the amounts of the various components is estimated by using actuarial calculations.
The old-age pension component of the contribution is invested into funds for future old-age pensions. The old-age pension component is defined so that its returns are, on average, sufficient to cover the funded components of the old-age pensions accrued during each contribution year.
The age and gender of the employees are taken into account in determining the old-age pension component. On average, women have a longer life expectancy than men, so this is taken into account when calculating the old-age pension component.
A contribution used for funding disability pensions is collected as the disability pension component. The level of the contribution is determined so that the returns obtained are sufficient to cover half of the future pension expenditure caused by pension contingencies during the next two years. In practice, a pension contingency means an illness on account of which a person is later granted a disability pension.
When the contribution is being set, the only expenditure known accurately for estimating future expenses is the expenditure that goes back only a couple of years.
For large employers (the sum of wages and salaries exceeding EUR 2.2 million per year), the disability component is also affected by their own disability pension contingencies through the so-called experience rating model.
The pooled component is a contribution collected to cover unfunded pension expenditure under the shared responsibility of authorized pension providers in the contribution year. This component is called pooled pension expenditure. The pooled component regulates the ratio of the various contribution components so that the total contribution is as agreed in each year.
The buffer of the pooled component must always cover at least 20 per cent of the pooled pension expenditure for the following year. Assets have also been collected into the buffer to level off the future increase in earnings-related pension contributions. By law, assets can be transferred from the buffer to old-age pension funds for future use.
The remainder of the contribution consists of the costs of managing earnings-related pensions, i.e. the operating expenses of pension providers, various statutory fees and contribution losses. From 2023, each pension provider independently sets its expense loading component, which is intended to cover its operating expenses. Thus, the level of this component can vary between different pension providers.
Composition of the employee’s contribution
The Employees Pensions Act defines how the employee’s contribution is calculated. In addition, the law stipulates that when the earnings-related pension contribution is increased, half of the increase is transferred to 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 over 53 and under 63 years of age 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 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.
From 2023, each pension provider independently sets its expense loading component, which is intended to cover the pension provider’s operating expenses. Each pension provider will thus plan its expense loading component in advance to match its real operating expenses as accurately as possible. An employer’s pension contribution thus depends on which pension provider the employer uses.
For a so-called occasional employer, the earnings-related pension contribution is a fixed percentage of the wages paid to the insured. In contrast, an employer with a contract can receive a discount on the contribution through a company-specific customer rebate. Employers who have a constant supply of employees or whose wages paid exceed EUR 9,822 during six months (in 2024) are appointed as employers with a contract.
Customer rebates are surplus distributed among the clients of pension insurance companies. They accumulate from investments. In practice, the customer rebate reduces the earnings-related pension contribution collected from both employers and employees.
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.
The earnings-related pension contributions of company pension funds and industry-wide pension funds are collected up front in several instalments during the year. The contribution collected can be adjusted during the year depending on the financial situation of the fund. If the financial situation and solvency are at a sufficiently good level, it may be decided to collect less or not to collect these contributions at all.
Municipal sector
The pension contribution paid by employees in the municipal sector is equal to the contribution in the private sectors. In 2024, the contribution is 7.15 per cent for employees who are under 53 and over 63 years of age and 8.65 per cent for those who are over 53 and under 63 years of age.
Keva manages pensions in the public sector, and the Council of Keva decides the contributions of Kevas member organisations. The contributions consist of a wage-based pension contribution and a pooled component. Municipalities and well-being service counties pay a pooled component in addition to a wage-based contribution, and the pooled component replaces the old pension expenses-based pension contribution.
In 2024, the average wage-based contribution is 24.40 per cent of gross wage. The contribution consists of the earnings-related pension contribution, which is collected on all employers (23.60 % of wages) and the employer-specific disability pension contribution (average 0.80 % of wages).
Since the employer collects the employees’ contribution, the remaining share of employers’ wage-based contribution is in practice average 16.84 per cent of wages.
The pooled component levied from the municipalities and well-being service counties in 2023 will total EUR 632 million.
The State
The pension contribution paid by State employees is equal to the contribution in the private sectors. In 2024, the contribution is 7.15 per cent for employees under 53 and over 63 years of age and 8.65 per cent for employees who are over 53 and under 63 years of age.
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.
The average wage-based pension contribution levied by the state in 2024 will be 24.81 per cent of wages. The contribution will consist of all earning-based payment contributions levied from employers (24.01 per cent of wages) as well as an employer-specific disability pension contribution (on average 0.80 per cent of wages).
The wage-based pension contribution also includes an employee contribution, meaning the employer’s share is estimated to equal an average of 17.11 per cent of wages.
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 2024, this was 7.15 per cent for employees under 53 and over 63 years of age and 8.65 per cent for employees who are over 53 and under 63 years of age.
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 2024, the Church employer’s pension contribution is 28.7 per cent of the wage bill, while that of the Central Church Fund and ecclesiastical employers is 34.5 per cent. The wage-based contribution contains also the employee’s share.
In addition, parishes are charged a pension fund fee, which is 5.0 per cent of the church tax revenue.
Seafarers
Each year, the Ministry of Social Affairs and Health ratifies the pension contribution paid in accordance with the Seafarers’ Pensions Act (MEL). The share of the employees responds the share of other private sector employees.
In 2024, the employee’s share of the pension contribution is 7.15 per cent for employees under 53 and over 63 years of age and 8.65 per cent for employees who are over 53 and under 63 years of age. The employer’s contribution is 11.4 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 2024, 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 over 53 and under 63 years of age 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.
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 self-employed person’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 2024, 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 31,565 euros
- 24.10 per cent if the confirmed income is over 49,602 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 about 13.82 and 25.60.
