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Estonian government okays bill tying retirement age to life expectancy from 2027

BC, Tallinn, 05.04.2018.Print version
The Estonian government on Thursday gave its nod to a pension reform bill that would make the pension system more flexible from 2021, change the formula for calculating the size of pension and tie the retirement age to average life expectancy from 2027, informs LETA/BNS.

"It is a duty of the state to give people a feeling of security that they will be protected against poverty in old age. While the size of the wages that people are paid differs, a pension must ensure sufficient income also for low income earners so that the poverty risk of low income earners would not be aggravated when they reach retirement age," Minister of Social Protection Kaia Iva said in a press release.

"Just as much, we need flexibility in order for us to have enough workers and the elderly people who do not wish or cannot work full time to have possibilities for self-realization," Iva said.

According to the minister, Estonia will get a pension system made up of a first pillar building more on solidarity, which will depend on the number of years worked, a second pillar depending on the size of the wage, and a third pillar based on the person's voluntary contributions.

"A first pillar building more on solidarity requires that next to it we have a second pillar depending on the size of wage. A greater link to the person's own contribution will be preserved for future pensioners through the second pillar and, for those who wish, also through the voluntary funded pension," the minister said.

The payment of pension will become more flexible from 2021, with people getting the opportunity to choose themselves when they retire, to partially draw retirement pension or suspend pension payments without losing out financially in the end.

The transition from the current system to the new system where the first pillar will depend exclusively on the number of years worked will happen from 2021 to 2037, during which period the size of the first pillar of old-age pension will depend on the number of years worked and the person's wage half and half. The already accumulated insurance entitlements, or the portion of the first pillar which depends on the size of wage, will not be transformed into solidarity based entitlements.

From 2027, retirement age in Estonia will be pegged to average life expectancy to reflect changes in demographics and enable to pay pensions of similar size as now as population numbers decline. The possibility to join the second pillar will be reopened for people born between 1970 and 1982.

Changes to the national pension system have been prepared in Estonia since 2015, when a work group for the promotion of the sustainability of the state pension system bringing together interest groups and different institutions of the state was formed.

On Jan. 19, 2017, the government approved the principles of the pension reform and tasked the Ministry of Social Affairs and the Finance Ministry with drawing up the relevant bill and submitting it to the government. 

The changes to the pension formula do not affect the pension entitlements already accumulated, and the possibility of flexible use of pension will become available to everyone.

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