Sections

Finnish pension sector in united front

One aim of the pension reform of 2005 was to harmonise the provisions of the three private sector pension laws, TEL, TaEL and LEL. These three laws will be replaced by the Employees Pensions Act (TyEL) which will take effect 1 January 2007. Parliament approved the Act on 14 March this year.

TyEL unifies and clarifies the private-sector earnings-related pension acts so that they become one entity. Through the new act, earnings-related pension provision will be similar for both long employment contracts and short-term, temporary employment contracts.

Through TyEL the arranging of earnings-related pension provision is made easier, since a company or a private household as employer can, starting in 2007, arrange pension insurance for all employees under TyEL regardless of the amount of earnings, the length of the employment contract or the type of industry. In other words, under TyEL the employer may arrange pension provision for all employees with any pension insurance company. This, for its part, increases competition and makes the competition more efficient in the earnings-related pension scheme.

The change of the insurance policy has been made as easy as possible for the clients by the pension providers. TyEL insurance policies may be transferred from one insurance company to another starting at the beginning of 2007, but the insurance policy starts on 1 July 2007.

TyEL does not change the position of the Finnish Centre for Pensions. As to their contents the responsibilities of the Finnish Centre for Pensions remain as before in the proposed new legislation. The government proposal does not include any changes to the position, responsibilities or financing of the Finnish Centre for Pensions.

TyEL unifies the private-sector employees pension acts. On the other hand, the Self-Employed Persons' Pensions Act (YEL) and the Farmers' Pensions Act (MYEL), the Seamen's Pensions Act (MEL), the State Employees' Pensions Act (VEL) and the Local Government Pensions Act (KuEL) remain separate acts.

 

oday, the pension insurance contribution is calculated according to two different sets of rules. For contribution calculation purposes, the employers are divided into two categories, the so-called small and large-scale employers. The division is based on the number of employees.

In 2007, the same rules will apply, but the significant factor when categorising the employers will be the annual payroll instead of the number of employees. An employer with an annual payroll of less than €1.3m will pay a basic TyEL pension insurance contribution. The potential disability and unemployment pensions granted to their employees will not affect the amount of the contribution.

If the gross wages paid exceed €1.5m (estimate) a year, the pension insurance contribution will be affected by the amount of disability pensions granted to the employer's own employees, as one part of the contribution will be determined through a system of contribution categories. A contribution category is calculated for each employer with a payroll of €1.5m or more on the basis of the company's own disability pension expenditure of the two previous years.

If the payroll just exceeds €1.5m, the significance of the pension expenditure will, however, be minimal. The effect will increase gradually. When the payroll is larger than €2m (estimate), the disability cost component of the contribution will depend solely on the contribution category determined for each employer.

As of 1 January next year, the basic TyEL contribution will no longer be affected by the company's age structure.

Payment of the contribution will largely remain as it is today according to TEL. The contribution will be paid in advance and the final account for each year is made during the following spring.

Every year, starting 2008, employees will receive an extract of their employment record from their pension insurance company. The extract will contain information on the accrued pension and an estimate of the pension amount.

Jari-Pekka Törrönen is managing director of Mercer in Finland

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • DS-2497

    Closing date: 2019-01-09.

  • QN-2498

    Asset class: Fixed Income Investment Grade.
    Asset region: Global Developed Markets.
    Size: $50m.
    Closing date: 2019-01-07.

  • DS-2499

    Closing date: 2019-01-02.

  • DS-2500

    Closing date: 2019-01-10.

Begin Your Search Here