Ministry: Compensation for pension payments suspension coming in two parts

The "Superministry" complex in Tallinn, which houses the Ministry of Finance. Source: Siim Lõvi/ERR

Compensation to be issued following the suspension of payments to the so-called second pillar of the Estonian pension system will be disbursed in two phases, next year and the year after, the finance ministry says.

Payments were suspended after the arrival of the coronavirus pandemic, months after membership of the second pillar had been made voluntary.

Kertu Fedotov said while all the details of the compensation are yet in place, half of the total would be transferred in January 2023, the second half exactly a year later.

"There is still a bit to go until the disbursement time, while the process for discussing the state budget will begin in the autumn, so we can talk more exactly only then," Fedotov said.

"The exact amounts will be affected by the number of people who opt out of the second pension pillar this year.

The compensation is different in their case. They will also receive the amount of unpaid payments in the same month, when they leave the pillar. There will still be fewer people in the second pillar in 2023-2024," Fedotov went on.

The ministry has made only an estimate, of €276 million, for disbursements for 2023-2024, as noted in two batches in January of each year.

Another consideration is the return of pension funds, which will accumulate on average from July 1 2020 to the end of this year, while should the average return of funds after these two years be positive, the amount to be disbursed will be boosted, Fedotov added.

That sum will be transferred to the second pillar of the pension fund.

Meanwhile, the number of people applying to leave the second pillar has fallen compared with the first cohort, in 2021.

Whereas around 149,000 left the scheme as of September last year, this year, 50,000 will have left at the same time of the year, Fedotov added.

Those applicants can also withdraw their request to leave up until July.

With the arrival of the Covid pandemic in spring 2020, the government opted to suspend payments of 4 percent to the second pillar for 14 months, from July of the same year, for those people still in the scheme.

From October 2020, members of the second pillar could choose whether to continue as before with 2 percent contributions, or to suspend payments from that December.

Both the 4 percent and 2 percent contributions were re-installed automatically from September 2021.

Membership of the second pillar of the Estonian pension scheme had been mandatory for most wage earners, but a policy introduced by Isamaa when the party was in office with Center and EKRE (April 2019-January 2021) liberalized the system and permitted members to leave the scheme and retrieve the funds accumulated up until that point.

The second pillar refers to contributions from employer and employee, as compared with the first pillar (the state pension) and the third pillar (private pension schemes).

More information is here.


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Editor: Andrew Whyte

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