english summary

Employer or Not?

Companies offering invoicing services have gained popularity among private individuals such as freelancers and artists, who do assignments for customers. When the customer pays the invoice for the job, the company offering invoicing services transfers the payment to the bank account of the private individual, after deducting taxes, social security contributions and its own service fees.

Does this make the company offering invoicing services the employer of the private individual? Many who use invoicing services see themselves as employees rather than self-employed persons. In other words, they find that the company handling the invoicing on their behalf is to be considered their employer.

Earnings-related pension legislation clearly states that pension insurance is taken out and paid for either by the employer or the self-employed person. The insurance obligation is compelling and cannot be transferred to a third party. The earnings-related pension insurance is governed by the Contracts of Employment Act which, in turn, states that the employer is the party for whom a person works in return for compensation. In addition, the work is managed and supervised by the employer.

“This is why a company offering invoicing services cannot be considered its customers’ employer as referred to in the Contracts of Employment Act,” explains Maijaliisa Takanen, Head of the Legal Department at the Finnish Centre for Pensions. “It is problematic, though, because the companies offering invoicing services pay their customers’ social insurance contributions, which is clearly the obligation of the employer according to the Employees Pensions Act,” Takanen concludes.

The Healthy Retire Earlier

Health as a retirement predictor was examined in a recent study on the effects of the 2005 pension reform in Finland. The flexible retirement age, along with economic incentives, was believed to encourage people to work longer. Did it work?

The study by Mikko Laaksonen (Finnish Centre for Pensions), Taina Leinonen and Pekka Martikainen (Univ. of Helsinki) shows that retirement at age 63–64 has become more common after than before the reform. The study also reveals that this reform-related increase in retirement is more pronounced among those in good health.

Thus the pension reform has actually encouraged healthy people to retire early as a result of the freedom of choice offered by the flexible retirement age, regardless of the economic incentives for continuing in work.

Read the full article:

www.sciencedirect.com

Growing Investment Assets

The pension assets of the Finnish earnings-related pension system amounted to 180.9 billion euros in 2015. The assets have grown by 8.5 billion euros per year from 2005 to 2015. In the last three years, the growth has been solely due to investment returns since the private-sector pension expenditure has exceeded the premium income. This is likely to be the case also in the public sector as of 2017.

The corner stones of pension investments are productivity and solidity. Investing in both domestic and foreign instruments is the best way to spread the risk. In addition, the pension assets have grown too big to be invested only domestically. For the first time, investments outside the Eurozone exceeded 50 per cent in 2015. Circa 27 per cent of the investments were in domestic instruments.

In 2015, the real rate investment return was 5.2 per cent. The equivalent figure over the last five years was 3.9 per cent, and over the past decade 3.0 per cent.

Why Save Investment Returns?

To avoid rising contributions, is it not enough to keep the capital in the pension funds intact?

“No,” says Jukka Rantala, Managing Director of the Finnish Centre for Pensions. Here is why.

Statutory pensions are financed mainly with insurance contributions and investment returns. The funds are the capital and their return the capital income of the pension system. In order not to reduce the capital income, the capital itself must grow as pension expenditure grows.

Based on long-term projections, the real-term wages and pension expenditure will double in 45 years, which is an annual increase of ca 1.5 per cent. To maintain a stable contribution level, only 2.0 per cent of the estimated annual return of 3.5 per cent can thus be used to reduce the contribution level. The remaining 1.5 per cent needs to be kept in the fund to cover the growing expenditure.

Translator Lena Koski, Finnish Centre for Pensions (Photo: Olli Häkämies)
Translator Lena Koski, Finnish Centre for Pensions (Photo: Olli Häkämies)

LENA KOSKI

Translator

Finnish Centre for Pensions

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