"In essence, this is the first stage of streamlining the income tax system," Pentus-Rosimannus said. "The principle that the average old-age pension remains exempt from income tax in Estonia will come into force again and the income tax exemption will no longer decrease as the pension increases or, for example, if a person who has reached retirement age wants to continue working."

The current state pension tax exemption is €500 but if a pensioner has a higher income it becomes subject to tax. By 2023, there will be more than 200,000 pensioners receiving a pension of more than €500 and the state pension is expected to rise to €622 per month. Currently, the state pension is slightly over €500.

The new law wants to make the state pension exempt from tax regardless of a person's additional income.

The tax-free income of the pension can be used by those who have been granted an old-age pension, a survivor's pension, a national pension or an incapacity pension.                                         

In addition, the draft exempts from income tax the payments of mandatory and supplementary funded pensions made to a person who was assigned an incapacity for work upon reaching retirement age. 

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