Different Pension Schemes Have not Paid Off, National Audit Concludes

Photo: Postimees/Scanpix
2/28/2014 9:20 AM
Category: Economy

The National Audit Office finds that with the number working-aged people declining and the number of pensioners increasing, a diverse plan is required instead of simply gradually increasing the retirement age.

Based on its audit released Thursday, the office recommends that different kinds of special pensions should be reformed or abolished, and the development and regulation of second-pillar pensions should continue. This would be in the hope to create actual competition among plans and prevent fund management fees bringing the rate of return close to zero, uudised.err.ee reported.

The analysis finds that the current system favors early retirement and that in turn increases the shortage of pension insurance. In 2014, the expenses of the state pension insurance will exceed tax incomes by nearly 363 million euros. According to the state budget projections, the deficit may reach 474 million euros by 2017. Pension expenses made up 21 percent of the budget last year.

The average retirement age is 59.6 and early retirement is encouraged by various special pension schemes.

Some of the people paid from the pension funds should in fact get benefits from unemployment schemes, the audit found. Some people are also entitled to early retirement based on assessments on hazardous jobs worked in the early 1990s, even though work safety has improved significantly over the years and no studies have been made about the continued justification for such special pensions.

The lack of competition between pension funds has led to a situation where the rate of return is small, and investing is lackluster because of hefty management fees. The second-pillar pensions have failed to meet other goals that were set with the establishment of the compulsory funded pension system.

The gap between reality and expectations also continues to be large, with people still expecting to get large pensions.

There are about 412,000 pensioners in Estonia, more than 10 percent more than 10 years ago.


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