Minister of Social Protection Margus Tsahkna (IRL) presented a plan on Wednesday to raise the retirement age in Estonia to 70 years by 2040, unpeg the size of the pension of the first pillar from a person’s wage and instead fix it to the number of years worked.
Beyond the age of 70, the retirement age would then remain fixed to the current life expectancy, so that if the latter rises the retirement age follows, and vice versa, Tsahkna said in a press briefing on Wednesday.
The minister added that since the size of an individual’s pension currently depended on the amount of social tax paid, the big differences in wages were carried over to pensions. The same applied to the gender wage gap, as well as any other instance of inequality in society, Tsahkna said.
Presently the income difference between the highest and lowest quintiles of wage earners in Estonia is more than tenfold. Where currently size of the top 20% highest is 1.7 times that of the lowest 20% of pensions, in the future there could be a difference of up to four times if the method of determining the amount of pensions paid out isn’t changed.
The ministry is also about to propose changing formula in such a way that in the future, the portion of the pension paid out of the first pillar would depend almost exclusively on the number of years worked. The peg to the wage earned by the person while in employment would be preserved in the second pillar.
Tsahkna will present his proposals for the pension system in the cabinet meeting on Thursday this week.
After gradual increases from different qualifying ages applied earlier, the retirement age for men and women is at 63 years in 2016.
Editor: Editor: Dario Cavegn