Pegging retirement age to life expectancy may become an option

(Postimees/Scanpix)
1/29/2016 9:29 AM
Category: Politics

Facing difficulties financing the pension system, the Government deliberates a variety of possible solutions. One is to peg the retirement age to life expectancy starting in 2027.

Every five years the Government reassesses the sustainability of Estonia’s pension system. The next report is in preparation and due to be published in March this year.

Several factors have the potential to bring the current pension system to the brink of collapse. If present trends continue, Estonia faces an ageing population, a diminished workforce, a discouraging birth rate and rising healthcare costs.

Bluntly put, as the number of pensioners goes up, the number of those working and paying contributions goes down, while Government spending on the national health insurance system has to increase along with the average age of the population.

The ongoing labour force reform plans to disconnect retirement and disability pensions and to pass the latter on to Töötukassa, the state unemployment insurance fund. But this only solves the problem on paper, as the circumstances don’t change.

Postimees reported yesterday that according to Kristiina Selgis of the Ministry of Social Affairs, the current system could only be sustained with pensions at present levels or lower. Increasing pensions would only be possible if the system itself changed.

There are several possible approaches to this. A first step was the decision to raise the general retirement age, today at 63, to 65 by 2026. But this alone won’t do.

Now discussed is the option of pegging the maximum retirement age of 65 to life expectancy on from 2027. This would mean that the retirement age could only rise along with the life expectancy of the population.

Making the general retirement age flexible is another option. Under such a scheme, people get a smaller pension if they retire early, and a bigger one if they retire late.

Another measure Selgis mentioned is to give people the opportunity to retire only partially. They would go on working a reduced number of hours while receiving a partial pension. This approach could be combined with the possibility to suspend pension payments whenever paid work is available.

What all the potential solutions have in common is that they keep up the number of contributors to the system while keeping the number of pensioners as small as possible.

The Government has appointed a commission to deal with the matter. Members are Minister of Social Protection Margus Tsahkna, Minister of Health and Labour Jevgeni Ossinovski and Finance Minister Sven Sester as well as representatives of different ministries.

Dario Cavegn

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