1. Division of Costs in Graphs and Figures
This slideshow includes central information
on the financing and division of costs of the earnings-related pension system

2. Partially Funded System
Pensions can be financed using a pay-as-you-go system, a funded system or a combination of both.
In the pay-as-you-go system, the pension contributions and any other financial sources cover the entire pension expenditure, including administrative costs, of the year in question. The contributions and the benefits are allocated to different generations. The system is simple, but if the pension expenditure rises, the pension contributions also rise. The contributions have to be paid also in weaker economic times.
In the funded system, the benefit is funded at the time that it is earned, which means that the contribution and the benefit are allocated to the same generation. The investment return allows for a lower pension contribution. However, the system comes with the risk of investment losses.
Pensions under the Employees Pensions Act (TyEL) and the Seafarer’s Pensions Act (MEL) are financed through a partly funded system, in which the pension expenditure is covered partly through funding and partly with through the contributions paid in the year in question. This type of system is flexible, and with the help of the fund, the contribution level can be adjusted. The risk with a partly funded system is its complexity.
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3. Partial Funding of Pensions Under the Employees Pensions Act and the Seafarers’ Pensions Act
Pensions under the Employees Pensions Act (TyEL) and the Seafarer’s Pensions Act (MEL) are partly funded. The division into the funded component and the pooled component is done at the level of the individual pension.
The expenses of the pooled component are shared by the pension providers through joint and several liability. The funded component is the liability of the pension provider that has insured the earnings.
Old-age pensions are funded throughout working life. Each pension provider is liable for the share of the funded component accumulated from the earnings that it has insured.
The disability pension is funded at the time that the pension starts. The pension providers that the pension recipient has been insured in during the so-called review period, i.e. during the two years before the year of the pension contingency, are liable for the funded component.
The old-age and disability pensions contain a funded component, while the survivors’ and part-time pensions are financed solely through the pay-as-you-go system.
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4. Financing of Pensions in Finland
In the private sector, pension accrue under the Employees Pensions Act (TyEL), the Seafarer’s Pensions Act (MEL), the Self-Employed Persons’ Pensions Act (YEL) and the Farmers’ Pensions Act (MYEL).
Employee’s pensions (TyEL, MEL) are partly funded, while the pensions of the self-employed (YEL, MYEL) are financed through the pay-as-you-go system. The pensions of the self-employed are also partly financed by the State insofar as the collected contributions are not enough to cover the pension expenditure. A little less than a third of the seafarer’s pensions are also funded by the state.
Public sector pensions (JuEL) are financed through pay-as-you-go systems that include buffer funds. State pensions are also financed by the state’s tax income.
Public sector pensions include local government pensions, state pensions, the Evangelical-Lutheran Church pensions, as well as the pensions of the employees of Kela, the Orthodox Church, the Bank of Finland and the Government of the Åland Islands.
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5. Last pension provider pays all pension components
The Finnish pension system is decentralised, which means that the earnings-related pensions are managed by several pension providers. Several pension insurance companies offer pension insurance under the Employees Pensions Act (TyEL) and the Self-employed Persons' Pensions Act (YEL). Pension insurance under other acts is offered by the act-specific pension providers. A pension recipient may have accrued pensions under different pension acts (the funding of which is the responsibility of different pension providers) during their working life.
However, in general, the pension is applied from only one pension provider. Thanks to the principle of the last insurer (VILMA principle), one pension provider pays out the entire pension to the pension recipient, including the statutory components of the pension that are the liability of other pension providers. The pension components paid on behalf of the other pension providers is collected from the liable pension providers via a process called the division of costs. The process is implemented by the Finnish Centre for Pensions.
In 2016, 6 pension insurance companies, 13 company pension funds, 4 industry-wide pension funds, Keva (public sector pensions), the Farmers’ Social Insurance Institution Mela (pensions under the Farmers’ Pensions Act [MYEL]) and the Seafarer’s Pensions Fund (pensions under the Seafarer's Pensions Act [MEL]) participated in the division of costs of earnings-related pensions. Other parties participating in the division of costs were the pension funds of the Orthodox Church, the Bank of Finland and the Åland regional government. They also fund certain jointly financed pension components such as the pension that accrues for unpaid periods. However, these pension providers are not part of the principle of the last insurer, so pension providers have to apply for their pension from these providers separately.
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6. Division of Costs of Earnings-related Pensions
In line with the VILMA principle (the principle of the last provider), the total pension of an individual is paid out by the pension provider in which the person in question was last insured before retiring. The pension is divided into components accrued based on different pension acts. Different pension providers may be liable for these different components. Each year, the Finnish Centre for Pensions divides the costs between the pension providers. Six different reports are written in connection with the division of costs.
The expenses of jointly financed pension components are divided between the pension providers. The TyEL-MEL-VILMA pension adjustment includes an account of the funded pension components paid on behalf of other pension providers. In the division of costs of pensions under the Self-employed Persons’ Pensions Act (YEL), the YEL pension providers sort out the jointly financed pensions under YEL and distribute the State’s share of the YEL pension expenditure between the pension providers. The pension that accrues from certain social benefits is financed jointly by the pension providers. The division of costs relating to that pension is done in the division of costs for unpaid periods.
The Unemployment Insurance Fund (UIF) pays a contribution to the pension system to cover the costs relating to the pension that accrues from certain social benefits. The State compensates benefits paid under the Act on Compensation for Pension Accrual from State Funds for Periods of Childcare and Periods of Study (VEKL). The Finnish Centre for Pensions calculates the pension providers’ shares of these contributions in separate cost allocation reports. The Finnish Centre for Pensions also calculates the pension providers’ shares of its own expenses.
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7. Money Flow of Earnings-related Pensions in 2015, EUR billion
The statutory pension provision in Finland is financed mainly through earnings-related pension insurance contributions paid by employers, employees, the self-employed and the farming entrepreneurs, as well as with accumulated pension assets and related investment returns.
Some pension acts include contribution components paid by the State. The Unemployment Insurance Fund also participates in the payment of the earnings-related pension system’s expenses.
In 2015, approximately EUR 1.6 billion passed through the Finnish Centre for Pensions in the distribution of costs. In the graph, the money flows of the distribution of costs are in dark blue.
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8. TyEL and MEL Pensions in Payment in 2001–2015
Paid pensions under the Employees Pensions Act (TyEL) and the Seafarer’s Pensions Act (MEL), as well as the share of the pension components paid jointly in The figures include supplementary pension provision and the MEL excesses, but not the pension components accrued for unpaid periods.
The MEL pensions excess component of the TyEL pension provision is called the MEL excess. It is financed in full by the Seafarer’s Pension Fund.
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9. Pension Expenditure Under YEL and State’s Share in 1990–2015
A person who is engaged in gainful employment without being in an employment relationship is insured under the Self-employed Persons’ Pensions Act (YEL).
The self-employed accrue YEL pension based on their confirmed YEL income from work. The YEL insurance contributions are also determined based on the confirmed income from work.
The level of the YEL insurance contribution is determined based on the average contribution under the Employees Pensions Act (TyEL). The State finances the share of the YEL pensions that the contributions paid by the self-employed do not cover.
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10. Pension Expenditure Under MYEL and State’s Share in 1990–2015
The insurance under the Farmers’ Pensions Act (MYEL) is the earnings-related pension insurance for farmers, forest owners, fishermen and reindeer herders, as well as their family members. Grant recipients are also covered by MYEL. The Farmers’ Social Insurance Institution Mela manages the MYEL insurance.
The MYEL insurance contribution is calculated based on the insured’s individual MYEL income. The contribution rate depends on the age and the amount of the income from work. The State finances the share of the MYEL pensions that the insurance contributions do not cover.
Source of data on slide: Mela
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11. Pension Components Paid Based on Unpaid Periods in 2006–2015
Pension has accrued for social benefits received during unpaid periods since the year Unpaid periods refer to periods during which the employee has received either a maternity or a paternity allowance, a parental allowance, a sickness allowance, a partial sickness allowance, a special care allowance, job alternation compensation, an earnings-related unemployment allowance, an adult education subsidy, a rehabilitation allowance, or compensation based on the Motor Liability Insurance Act or the Workers’ Compensation Insurance Act.
The pension components that have accrued based on unpaid periods are jointly financed. The costs are the liability of all pension providers and distributed in relation to the wage sum insured by each given pension provider.
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12. Benefits Paid Based on VEKL in 2006–2015
The benefit based on the Act on Compensation for Pension Accrual from State Funds for Periods of Childcare and Periods of Study (VEKL) paid alongside the earnings-related pension has been paid since 2005.
VEKL benefits accrue to persons who are unable to engage in gainful employment because they are caring for their child(ren) under the age of three and receive a child home care allowance, or because they are completing a lower or higher university degree, a degree from a university of applied sciences or a basic vocational degree. The benefits accrue based on a theoretical income.
The State compensates the amount of the VEKL benefit to the paying pension provider.
In 2015, VEKL benefits were paid to the amount of EUR 2.9 million, accounting for 0.01 per cent of the earnings-related pension expenditure, but VEKL benefits are estimated to stabilize at 2.3 per cent of the pension expenditure by the year 2080.
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13. Contribution to Unemployment Insurance Fund in Current Values & Unemployment Rate in 1990–2015
The amounts for each year have been adjusted to the price level of 2015 using the earnings index.
The unemployment security system compensates the earnings-related pension system the costs caused by the earnings-related benefits for unpaid periods already at the pension accrual stage.
Source for unemployment rate: Statistics Finland.
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14. Pension Assets Under TyEL And MEL by Division of Costs 2007–2015, per 31. Dec.
The pension assets for 2007–2012 include the combined solvency margin and the technical provisions used in the solvency calculation. As of 2013, the pension assets include the solvency capital and the technical provisions.
Until 2012, the key indicator of solvency was the solvency margin, and as of 2013, the solvency capital. The solvency margin was calculated as the difference between the assets and liabilities at current values. The solvency margin includes the capital and the reserves, the accumulated voluntary provisions, the difference between current value and book value and the unallocated insurance reserve.
The solvency capital consists of the solvency margin and the equalization provision, which is the pension-provider-specific buffer of the insurance business.
The technical provision is a value entered into the financial statements and is an estimate of future pension expenditure insofar as such provisions are funded. Pension insurance companies and industry-wide pension funds enter the technical provisions into their financial statements. The technical provisions consist of the provision for unearned premiums and the provision for outstanding claims.
The clearing reserve is a buffer fund for pensions financed jointly by the earnings-related pension providers. It is used to secure the financing of the joint pension components also in weaker economic situations.
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15. TyEL and MEL Insurance Contribution per Type of Pension Insurance Provider in 2017
An employer pursuing activities that fall subject to the Employees Pensions Act (TyEL) can arrange the pension provision of its employees with a pension insurance company, a company pension fund or an industry-wide pension fund. The Seafarer’s Pension Fund insures activities that fall subject to the Seafarer’s Pensions Act.
Regardless of the type of pension provider, the insurance contribution is determined so that it, together with the investment returns, covers the funded pension liability, the jointly financed pensions, the administrative expenses and the losses for unpaid premiums in the year in question.
The employer’s contribution varies per pension provider, and in certain types of pension providers, by employer within the pension provider. In earnings-related pension insurance companies, the insurance contributions of the insured contractual employers can be reduced with customer bonuses, and for large employers, the contribution is affected by the employer’s own disability pension contingencies in previous years. In company pension funds and industry-wide pension funds, the insurance contribution is a form of support payment.
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16. Earnings-related pension contribution rates in 2017
TyEL = Employees Pensions Act
MEL = Seafarer’s Pensions Act
JuEL (Keva) = Public Sector Pensions Act (local government employees)
JuEL (State) = Public Sector Pensions Act (State employees)
JuEL (Church) = Public Sector Pensions Act (Evangelical Lutheran Church employees)
YEL = Self-employed Persons’ Pensions Act
MYEL = Farmers’ Pensions Act
The Ministry of Social Affairs and Health confirms the earnings-related contribution rates annually.
Keva’s contribution includes the components based on wage and pension expenditure.
In addition to the Church contribution, a pension fund contribution. In 2017, it is 4% of the Church tax.
The contribution rates confirmed for the self-employed and farmers are linked to the average TyEL contribution.
The contribution rate for a self-employed person who has turned 53 is applied as of the beginning of the year after they turn 53 years and continues until the end of the calendar year in which they turn 63 years.
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17. Average TyEL Contribution Components of Employer Insured in an Earnings-related Pension Insurance Company in 2017
% of wages
 Old-age pension component
3.5
 Disability pension component
0.9
 Pooled component
19.7
 Other components
0.8
 Bonuses
 -0.5
 Average contribution
 24.4
 Employer’s share
17.95
 Employee’s share
6.15/7.65
The assets collected as the old-age, disability and unemployment pension components of the contribution are funded to cover future pensions. The clearing reserve of the contribution is used to finance the pension expenditure of the year in question insofar as such provisions have not been funded in advance.
The figures in the table are average values. The contribution of an employer taking out a pension insurance with an earnings-related pension insurance company depends on the size of the employer. An occasional employer pays a fixed percentage as the insurance contribution for its employees. A small contractual employer pays an insurance contribution equalling a basic tariff contribution. The contribution of a large employer depends on the number of disability pension contingencies of its own employees. The contribution of contractual employers is affected by the customer bonus. Its size depends on the investment return of the pension provider and the length of the customer relationship. In addition, the other components of the contribution may be reduced based on smaller administrative fees and premium losses.
The employee’s share of the contribution is higher for ages The employer pays the entire contribution to the earnings-related pension company and withholds the employees share from the wages paid to the employee. In the average employer’s share listed in the table, the average share of the year-olds of the workforce has been taken into account.
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18. Average TEL-/TyEL contribution in 1962–2017
Between 1962 and 1992 only employers paid pension contributions. The contribution level was low to begin with but rose as of the 1970s.
Employees started contributing towards their pension in At the same time, it was agreed that any increases to the contributions be divided fifty-fifty between the employer and the employee.
Between 2005 and 2016 the contribution rate of those who had turned 53 years was higher than for younger employees.
The competitiveness pact that took effect as of the beginning of 2017 resulted in a shift of 0.2 percentage points from the employer’s contribution to the employee’s contribution.
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