1. Finnish Centre for Pensions, Helsinki, Finland;2. Faculty of Management and Business, Tampere University, Finland;3. Faculty of Information Technology and Communication Sciences/Statistics, Tampere University, Finland
Abstract:
Using unique data on the contribution base, we investigate under-insurance within the statutory pension scheme for self-employed workers in Finland. Under-insurance is defined as the difference between pension-declared income and tax-declared income. The trajectory modelling technique applied has allowed us to estimate the levels of under-insurance for different subgroups and to identify possible explanatory factors. Under-insurance is found to be persistent and large. The analysis reveals six distinctive and homogenous sub-groups of self-employed workers. Close to 84 per cent of these workers pay too little in contributions, often leading to inadequate protection against personal risks. Especially for lower-income self-employed workers, this points to myopic behaviour as regards contributing to the self-employed statutory pension scheme and calls for fine-tuned economic incentives.