The amount of the guarantee pension is €986.30/month. (Takuueläke | Henkilöasiakkaat | Kela, read 19.4.2025)
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Well, it really is. Where did that 780 come from in the corners of my memory? That’s already better then.
The fact that someone other than the entrepreneur defines the “reasonable earned income” used in the industry is not an unusual thing, for example, in the economic powerhouse USA.
“In the United States, when an entrepreneur owns an S Corporation and works in it, they must pay themselves ‘reasonable compensation’. This is required by the IRS (Internal Revenue Service) so that the entrepreneur does not avoid FICA taxes by paying everything only as tax-free dividends (distributions).”
In the USA and most European countries, taxation and entrepreneur’s pension contributions are based on the company’s net income. This would be the only correct approach for the entrepreneur’s pension contributions and taxes.
In the USA, an entrepreneur can make tax-free owner withdrawals, which do not affect net income.
Regarding the entire pension system, I would reform it as follows:
Option 1:
Exempted or significantly smaller for the part exceeding the minimum pension amount.
The amount should be €1500 or slightly higher, so that the Finnish welfare society would be saved from housing allowance and social assistance payments.
With a pension of €1500/month in Helsinki, with rent of €700/month and health expenses of €100/month, the housing allowance is still €136/month.
Option 2:
Alternatively, I would follow the model of the USA, that economic giant, where the employee’s and employer’s contribution is 6.2%, totaling 12.4%. The same pension contribution percentage for entrepreneurs from net income.
However, these contributions have been proposed to be raised to 15.76%.
The average income earner’s pension compensation level is 40%, the average pension is slightly less than $1700, pension accrual decreases as income increases, contribution cap is $176000.
In this model, low-income earners themselves also have the opportunity for higher income and the possibility to invest themselves.
However, I would choose Option 1 (minimum pension amount), as these benefits are easily used in welfare states.
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Well, of course it wouldn’t be. A company’s profit often arises from much more than just the entrepreneur’s work contribution. That suggestion is just as sensible as if, for example, a pension contribution of over 25% were to be collected on top of all taxation from dividend income from shares, sales, or even rental or interest income.
And to reiterate, the result of business operations arises from work done as well as financial risk taken and capital invested. Therefore, it is in no way comparable to wage income.
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It’s interesting that in the USA, the center of the world economy, an entrepreneur’s pension contributions and taxes are paid from net profit…
The same applies in Europe, at least in France, Belgium, Sweden…
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A company’s net profit is not the same as an entrepreneur’s income. Different countries have different bases for determining pension contributions, and if pension contributions are to be collected, for example, based on earned income, it naturally encourages taking company income out in forms other than earned income. That would happen in Finland too. I can’t think of any other winner than accounting firms if private entrepreneurs switch to operating through limited companies.
If an entrepreneur uses a corporation in the USA, it is a C Corporation, and in this case, “reasonable compensation” applies to pension contributions, meaning “someone” determines what pension contributions the entrepreneur must pay.
That has already been discussed in this thread.
If the entrepreneur is a Sole Proprietorship or LLC, there is no salary/earned income; instead, the entrepreneur makes tax-free owner’s draws and pays taxes and pension contributions from the company’s net profit.
An S Corporation entrepreneur can pay a salary and employee contributions as if they were an external employee. Likewise, as an employee, the same share.
This is how it works in the US.
This would probably be well-received by Finnish entrepreneurs if the contribution percentages were also taken from the USA… With Finnish percentages, there would be a record number of businesses closing down.
The possibility to minimize YEL contributions by declaring a lower income than reality was at least for me a significant incentive to become an entrepreneur. The total tax percentage then remains relatively tolerable.
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I suppose this news about pension funds’ success in their investments fits this board.
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Since I’ve been paying for a voluntary pension insurance through the company for 10 years, and now, within a year of divorce, I could withdraw the accumulated savings all at once before retirement age, I started calculating whether it’s worth withdrawing them or not…
Fees have eaten up half of the returns over just over 10 years. It’s still up by 54%. By investing directly in stocks myself, the fees would have been significantly lower…
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Jocka Träskbäck of the National Coalition Party demands that the current transition period for the YEL reform be revoked and changes be made faster. From an entrepreneur’s perspective, all changes to the old system are major deteriorations, so the transition period at least ensures that business operations can still be conducted in Finland for four years. Liisa Hanen of Myry would also like to reform a lot, but says that the reform is progressing slowly because there are so many details to consider (fortunately).
“The entrepreneurs’ pension system was reformed in 2023. The purpose was, among other things, to reduce so-called underinsurance. Underinsurance means that an entrepreneur keeps their pension contribution level artificially low, which also results in them accumulating less pension than they should.”
“One reason for underestimating expenditure might be that officials believed entrepreneurs’ pension contributions would increase more as a result of the law change than ultimately happened.”
The officials’ calculations went wrong. Raising YEL contributions did not, after all, result in more money being collected from entrepreneurs overall for the pyramid. What could be the reason for that? 
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New entrepreneurs get the same benefits as existing ones, i.e., the possibility to under-insure. So, something that we want to get rid of completely is made possible for more people. 
Equality is a great thing, but the news starkly reveals how absurd the endeavor of artificially keeping the YEL system alive has become.
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What do you mean by underinsurance?
Many experienced entrepreneurs already have sufficient pension coverage secured, for example, through Tyel, and no increase is needed for it. In addition, a business, investments, real estate, and capital can be designed for one’s own security.
Isn’t the most essential thing the existence of incentives for entrepreneurship, not hindering it?
A good starting point is the level of the guarantee pension; once it has been saved through pension contributions, the voluntariness and features of additional security models can be considered.
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Exactly. When the pension exceeds the level of the national pension (kansaneläke), accumulating pension after that should be voluntary. Also on the employee side.
As I wrote here earlier, I was offered a mandatory increase of my YEL (Self-Employed Persons’ Pension Act) to 67,436€, with a range of 67,436-125,238€. It was at the 14k€ level. I have accumulated 1348€ in pension (TYEL & YEL). I’m under 50. My net worth is 7-figure; I certainly don’t want to put my money into such a bad investment (YEL)…
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My pension accumulation is already at a level that is perfectly sufficient, and any additional investment in it feels like throwing money down the drain. I’d rather invest separately
- in income security
- in investments
Currently, pension security is invested capital that you don’t own yourself. You don’t even know where it’s invested or what the actual security is on any given day.
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In Germany, the Chancellor warns young people not to rely on the public pension system.
A similar warning would be honest to give in Finland too, even though ours is partly funded.
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Could we stop this pension pyramid scheme. I mean, my savings account yields more than Varma’s investments, where probably 300 greasy-haired people work.
Let’s do some calculations.
Let’s assume I earn EUR4k per month, which is the same as the average Finn. Pension contributions are thus about EUR1k per month. According to the pension calculator, a person receives about €3400 per month in pension when they retire at 68 years old. Since I am a man, I will then, on average, enjoy a pension for 12 years, meaning I would receive about EUR490k in pension during my lifetime.
Under the same conditions, i.e., with a thousand-euro monthly investment and an 8% expected return, I would have 3.8 million euros when I retire. To make the scenarios comparable, let’s compare how much I would have earned in both scenarios by the age of 80 when I die. If I invest that 3.8 million for another 12 years, I would have 9.6 million euros at 80 years old, and let’s assume that due to living costs (affecting compound interest), I would only have 8.6 million euros at 80 years old.
The state will therefore steal 8.1 million euros from me during my lifetime in the form of a pension pyramid scheme. Since I have a cohabiting partner, the state will steal about 16 million euros from us.
How do we not rise against this system and overthrow the welfare state? The welfare state is the worst invention in history, but we have been brainwashed since childhood to believe that the welfare state is the best invention ever. Are you and your partner ready to pay 16 million euros for the welfare state?
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If you are a private sector employee, your contribution is 7.15%. That is just under 300€ per month. At this percentage, the state would rob you slightly less than 16 million.
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In the calculation, the “invisible” portion directly paid by the employer was probably included.
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Pension contributions mainly go to paying the pensions of current retirees because pension funds are nowhere near enough for pensions to be paid from the investment returns of pension funds.
Your example of 1000€/month does not, therefore, go into the investment portfolio of Varma or others. If those contributions were not collected, the current pension incomes of Finland’s ~1.6 million current retirees would disappear at the same time.
The employment pension system should also not be built on an expected return of 8%.
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