Estonian government agrees on abolishing special pensions, tying first-pillar pensions to years worked ({{commentsTotal}})

24.4 percent of Estonia's population were at risk of poverty or social exclusion in 2016.
24.4 percent of Estonia's population were at risk of poverty or social exclusion in 2016. Source: (Siim Lõvi /ERR)

At Thursday's Cabinet meeting, the Estonian government agreed on abolishing special pensions for members of the defense forces, prosecutors and police and border guard officials as of 2020. They also chose to proceed with other pension-related changes, including tying the retirement age to the average life expectancy as of 2027 and the size of one's first-pillar pension to the number of years they have worked.

The change concerning special pensions will affect those entering into service into the affected fields as of Jan. 1, 2020. All members of the Estonian Defence Forces (EDF), prosecutors and police and border guard officials currently employed or entering into service before then will retain the right to receive a special pension, spokespeople for the government clarified.

According to Minister of Social Protection Kaia Iva, the situation will become fairer following the reform. She added that in the past, the special pension system was created to compensate for the low wages of public officials, but as the situation has since changed, there is no need to treat people differently today.

The Ministry of Social Affairs is to prepare the draft bill and submit it to the government in April.

At present, a total of 1,800 members of the police force, 750 members of the EDF and 21 prosecutors receive a special pension. In 2015, the average monthly pensions of prosecutors, police officials and members of the EDF were €1,759, €676 and €635, respectively. In comparison, the average old-age pension is €375. Those eligible will begin to receive their special pension after turning 50 or up to 55 years of age; the regular retirement age is currently set at 63.

First-pillar pension to depend on years worked

"Our task is to provide people with a sense of security, that they are protected from poverty in their old age," Iva commented regarding planned changes to first-pillar pensions. "This means that the pension system has to guarantee needed income not affected by huge differences in wages. We decided today to make future pensions more solidary, take population trends into account and make [pensions] flexible enough that people can choose for themselves when they want to retire."

In order to guarantee the solidarity of pensions, the Cabinet agreed on changing the old-age pension equation. This means that instead of an insurance share, following a transitional period, people would begin collecting a so-called service length share, the size of which is dependent on the years a person has worked. "As a result, we get a pension system that consists of a solidary first pillar which depends on time worked, a second pillar which depends on the Social Tax and a third pillar based on a person's own contributions," the minister noted.

In the future, people would be able to choose when they retire, to receive a partial pension and to stop their pension payments and resume them at a more suitable time. In order for the pension system to be consistent with demographic developments and to allow for the payment of pensions equivalent to present pensions in the future, the national old-age pension age would be tied to the projected average life expectancy beginning in 2027.

The changes would not affect current old-age pensioners or insurance shares that have already been collected.

With the government's approval, the Ministries of Social Affairs and Finance will next draft a corresponing bill and submit it to the government during the first quarter of 2018.

Editor: Editor: Aili Vahtla

Source: BNS



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