The aim of changing Estonia's pension system is to ensure dignity in retirement and reduce inequality in society, Prime Minister Jüri Ratas said in remarks issued after the ruling coalition had agreed to proposed changes linking the size of an individual's first-pillar pension to the number of years worked.
"The government decided this week to go forward making necessary changes to old-age pensions as well as to make additions to the pension equation," the Government Communication Office quoted Ratas as saying. "We want to make the pension system more flexible and solidarity-based in order to better meet people's needs and expectations. For us, it is an important principle that in the first pension pillar, one year worked would equal one year in retirement." He noted that the size of one's salary would continue to influence the size of the pension in the future as well, but on a significantly fairer scale.
"Increasing society's well-being and cohesion is one of the four main goals of this government coalition, toward which we are working every day," Ratas noted. "Eliminating the shortfalls that exist in the pension system and ensuring the solidarity of pensions is a substantial step toward a more equal society. The state must attach great value to each person, regardless of their profession and salary."
According to the new arrangement, which the Cabinet approved earlier this week, following a transition period, the insurance component which people currently accumulate for their first-pillar pension would be replaced with a length of service component exclusively dependent on the number of years worked. As a result, the pension system would consist of a solidarity-based first pillar dependent on the number of years worked, a second pillar depending on the amount of social tax paid for by the individual as well as a third pillar based on the individual's own contribution.
In addition, as of this year, the retirement age will be tied to the expected average life expectancy.
These changes will not apply to current old-age pensioners or insurance components which have already been collected. A transition period will be offered which will see first-pillar pensions begin to depend entirely on number of years worked by 2037.
The next step will be for the Ministries of Social Affairs and Finance to draw up the relevant bill and submit it to the government during the first quarter of 2018.
Editor: Editor: Aili Vahtla