Solidarity reserve fund

What it means

The solidarity reserve fund is one of the funds of the Social Insurance Agency. It covers deficits in the other funds, chiefly the old-age one, and is never credited to any individual insured person’s account.

Employers and the self-employed pay into it; employees do not. The rate is 4.75 per cent of the assessment base and, unlike old-age insurance, it adds nothing at all to the payer’s future pension.

Despite the name it has nothing to do with a company’s reserve fund, which a business builds from profit and shows in equity. The solidarity reserve fund is a levy: for the employer it is a payroll cost, and the money leaves the company for good rather than adding to its reserves.

How it works in practice

In payroll it is a separate line of the monthly contribution statement for the Social Insurance Agency. For a self-employed person it sits inside one monthly payment and explains much of the gap between the pension rate and total levies.

The contribution is capped: it is paid only up to the maximum assessment base for social insurance. Health insurance on wages has no such ceiling, so above that line only the health levy keeps growing and the overall levy burden on the income falls.

When we work out the cost of labour for a client’s new hire or pay rise, the solidarity reserve fund contribution is counted together with the employer’s other levies. A quote or budget that shows only the gross wage is missing an item the company pays on top every month.

What to watch out for

Self-employed people often work the levy out from the pension rates alone and underpay for months. The Social Insurance Agency then adds a penalty for every day late and lists the debtor publicly, a list every public contracting authority checks before awarding work.

A payroll software set-up error, such as the wrong type of insurance relationship for someone on a work agreement, does not show in the levies straight away. The Social Insurance Agency finds it retrospectively at an inspection and the employer pays the arrears with penalties, and for the solidarity reserve fund there is nobody to share the bill with, since the employee pays nothing into it.