Pension insurance

What it means

Pension insurance is the largest part of social contributions to the Social Insurance Agency. It splits into old-age and disability cover and is paid by employee and employer at their own rates.

Contributions paid feed into the future pension through the assessment base and the years insured. Understated pay therefore has a consequence that only shows decades later.

Pension insurance is pay-as-you-go: today’s contributions are paid straight out to today’s pensioners, and the insured person gains an entitlement rather than an account with a balance. That is what sets it apart from the second pillar, where part of old-age insurance goes to a personal account with an actual saved value.

How it works in practice

The base is gross pay, capped by the maximum assessment base. On non-employment agreements it depends on the type of agreement and whether the exemption was claimed.

Registering the worker with a registration form must happen before work starts. Without registration no insurance arises, even if contributions are paid later.

A sole trader pays pension insurance personally as a self-employed person. The obligation depends on the previous year’s business income, which the Social Insurance Agency takes from the tax return, so after filing we check whether the client has become liable to pay or whether the contribution has changed.

What to watch out for

On work performance agreements the exemption applies to one agreement, and exceeding the fee limit removes it retroactively. The company then pays the contributions for the whole period plus penalties.

If a sole trader leaves contributions unpaid, the period does not count towards the pension until the debt is settled, and penalties keep growing. It often comes to light only on retirement under old-age insurance, when old debts are paid in one go and the pension calculation is delayed.