Expert: Second pillar scheme reason for continued low pensions in Estonia

Inrek Neivelt and Anu Lill on Tuesday's 'UV faktor'
Inrek Neivelt and Anu Lill on Tuesday's 'UV faktor' Source: Siim Lõvi /ERR

Pensions in Estonia are low due to the system created 20 years ago, businessman Indrek Neivelt says.

Appearing on ETV panel show "UV faktor" Tuesday, Neivelt also referred to the reform of the Estonian pension system put in place under the Center/EKRE/Isamaa administration's time in office, which saw membership of the "second pillar", meaning employer/employee contributions, optional where it had been mandatory for most wage earners.

Neivelt, one of the co-founders of fintech firm Pocopay, said that the pension in Estonia is lower compared with many other countries, partly because of the second pension pillar itself, as created 20 years ago. "This is one of the problems. If we hadn't done that, pensions would have been 20 percent higher," adding that Estonia does not want to acknowledge this.

The liberalization of the second pillar was a step in the right direction, albeit an incomplete one, he said.

"All in all, 500,000 people made a better decision than five fund managers. This is the fundamental principle of all democracy, the market economy," he added.

Kristi Saare, an investor and financial expert, also appearing on the show, agreed that the system had not been working, adding that individuals should not rely on the state but take care of their own pension.

She said: "We have received technical improvements that have not solved the key issue, which is that Estonian pensioners are poor now and they will not be richer in the future either. We simply do not have enough money in the pension system. If we look at how much the average pensioner in Estonia earns compared with other European countries, this picture is simply one of dark tones."

In the current uncertain situation, there is no concrete answer for people on how to save or invest, she added, noting that what is more important for people now is that their income remains static in real terms and that their salary keeps up with inflation.

Co-panelist and financial journalist Anu Lill said the closest thing to a person is their own wallet, while they cannot rely on anyone else.

She said: "If you want to live better in the future, you have to take responsibility. This means mitigating the risk, mitigating the well-being risk, that you will have a better life than what you have accumulated. For women, this also includes mitigating the security risk."

Entrepreneur Toomas Annus, also appearing on "UK faktor", added that the size of the pension depends on the country's economic growth.

He said: "Our misfortune is still low efficiency. It is a problem of how to catch up with the rest of the world with labor productivity. I don't think there's any point in hoping for a miracle. There's no other choice but economic growth. If the economy grows, people and companies become wealthier, then there's no doubt that pensions will also grow. It makes no sense for us to hope that we are some strange country in which the economy is smaller, GDP per capita is lower, salaries are half as low, but pensioners in the meantime get rich."

"The only option is still economic growth. Physical, real, measurable. And if this doesn't materialize, if we don't catch up with it, our pensioners won't get anywhere either. There's nothing more to be done," he added.


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Editor: Andrew Whyte, Merili Nael

Source: UV faktor

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