The Self-Employed Persons Pensions Act was reformed – what actually changed?

The amended Self-Employed Persons Pensions Act (YEL), which entered into force on 1 January 2023, has sparked a lively debate and raised many questions in the press and social media since last summer, when the Ministry of Social Affairs and Health submitted a bill to Parliament on amending the Act. The driver behind the legislative amendment was the goal laid down in Marin’s government programme to find ways to improve entrepreneurs’ pension and other social security.

The legislative amendment is small and big at the same time. YEL insurance is still based on YEL income, which must match the salary that an entrepreneur would have to pay an external, equally experienced person to do the same work. In that respect, nothing has changed since 1970.

In essence, the legislative amendment boils down to three points:

As of 1 January 2023, the statutory level of YEL income is based on the median salary in the sector in which the entrepreneur pursues their activity. However, YEL income is confirmed based on overall consideration. This consideration takes into account all aspects affecting the value of the work input, such as the size of the entrepreneurial activities and whether the entrepreneur engages in self-employed activities on a full-time or a part-time basis.

The YEL income calculator helps entrepreneurs set their YEL income and gives them, based on their sector and turnover, a recommendation for YEL income and the possible range within which it can be chosen. The entrepreneur can choose the YEL income that best suits them from within the proposed range without any specific grounds. As a rule, YEL income below the sector median is recommended for a self-employed person whose company’s turnover is lower than the median in the sector. If an entrepreneur applies for YEL income that falls outside the proposed range, they must provide further information to help confirm their YEL income.

From now on, earnings-related pension companies will always have the obligation to present grounds for their decisions concerning income under YEL insurance. The grounds must indicate the aspects and facts that have come into play when making the decision and mention the applicable provisions. In practice, the aspects affecting the decision include, for example, the information provided by the entrepreneur in their application and other available information on the extent of the entrepreneur’s business activities, and the median salary in the sector.

The biggest change is the obligation imposed on earnings-related pension companies to check entrepreneurs’ YEL income every three years in order for it to better reflect any changes that may occur in the entrepreneur’s work. The reviews of YEL income will start this year in early summer, simultaneously in all earnings-related pension companies. The first in line will be the entrepreneurs with a YEL income of under EUR 15,000 and whose YEL income has not been materially changed over the past three years. If, based on the information available, an entrepreneur’s income for YEL insurance purposes is too low, their YEL income will be raised by a maximum of EUR 4,000 at a time in the first two reviews to be carried out in 2023–2028. The maximum increase of EUR 4,000 will not be applied, however, if the YEL insurance has started on or after 1 January 2023 or the YEL income has been changed on the entrepreneur’s initiative after 31 December 2022. If the review would result in a maximum adjustment of 5 per cent, the YEL income will not be changed.

Ethan Electrician

Has been self-employed since 2021 and applied for a change in his income for YEL insurance purposes as of 1 January 2023. Since Ethan’s YEL insurance was last confirmed after 31 December 2022, the earnings-related pension company will review his YEL income in 2026. As Ethan’s income for the purposes of YEL insurance was confirmed after the entry into force of the act, the maximum limit of EUR 4,000 will not be applied to the possible raise in the YEL income made in the review to be carried out in 2026.

Wendy Welder

Part-time self-employed since 2015. The current YEL income is under EUR 15,000 and has not been changed over the past three years, so Wendy’s YEL income will be reviewed at the earnings-related pension company’s initiative in 2023.
Based on the information available, Wendy’s entrepreneurial activities have significantly expanded over the years and her YEL income should be about EUR 35,000. Wendy’s YEL income will be raised by EUR 4,000 in the first review to be carried out in 2023.
Wendy has, at any given time, the opportunity to apply for a change in her YEL income so that it matches her work input.

Edward Engineer

The income for the purposes of YEL insurance is EUR 26,000 and the YEL insurance has been in force since 2000. Since his YEL income is over EUR 25,000 and Edward is not applying for a change to his YEL income, his YEL income will be reviewed by the earnings-related pension company in 2025. Based on the information available regarding the entrepreneurial activities, Edward’s YEL income should be EUR 37,000, but it can range between EUR 26,250–48,750. As Edward’s YEL income would change less than 5 per cent (EUR 26,000 vs. EUR 26,250), the review will not lead to a change in his YEL income.

Amendment to the Self-employed Persons’ Pension Act (YEL) approved by Parliament – the amendment will clarify the determination of confirmed income

YEL income calculator makes it easier to determine an entrepreneur’s confirmed YEL income

Go to our page Frequently asked questions about the YEL income review