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OECD: Estonia has among the lowest pension replacement rates in the EU

Pensioners at a park in Lasnamäe. Photo is illustrative.
Pensioners at a park in Lasnamäe. Photo is illustrative. Source: Ken Mürk/ERR

According to a recent study by the Organization for Economic Cooperation and Development (OECD), Estonia has one of the lowest pension replacement rates from among the European Union 27.

On average, the OECD says an EU employee on the national average will receive, on reaching retirement age, a wage worth 68.1 percent of their current working wage – a figure known as the future pension replacement rate.

Across the OECD's 38 member states, the average is lower, at 61.4 percent.

The OECD's parameters are an employee entering the paid labor market at the age of 22 and in the year 2022, working through to the official retirement age of the country in question.

Only mandatory pension accumulation schemes were in the picture, so voluntary pension schemes are excluded.

The OECD study, available here, also enumerated the ratio of pension to current wage both before and after tax – the latter presents a more representative picture, the study's authors say, given differences in tax systems across all the OECD nations.

In any case, on average, the future net pension replacement rate (ie. pre-tax) is 11 percentage points higher than the future gross replacement rate.

The after-tax figure for Estonia stands at only 34.4 percent, the second lowest result in the EU, after Lithuania.

The other EU nations with a figure below 50 percent are Ireland (36.1 percent) and Poland (where the rate differs strongly by gender; Polish men are in a better position here, at 40.3 percent, than are working Polish women, at 31.5 percent).

Latvia has a future net pension replacement rate above 50 percent (at 52.8 percent), while in Finland the figure is 65.1 percent, the OECD says.

Portugal has the highest future net pension replacement rate, at 98.8 percent, followed by the Netherlands (93.2 percent) and Greece (exactly 90 percent).

This means those retiring in those countries have practically the same in their pocket as they did while working.

Additionally, Austria, Luxembourg, Spain and Italy all had net pension replacement rates above the 80-percent mark, according to the OECD.

Nonetheless, Estonia was one of several OECD nations which has substantially hiked first-tier pensions, which, the organization says, will particularly benefit retirees with low pensions.

Founded in 1961, OECD is a forum whose member countries describe themselves as committed to democracy and the market economy, and as such is seen as something of a rich nations club. Member states and applicant states are mostly to be found in Europe and the Americas, along with Australia, New Zealand, Japan and South Korea. Estonia joined in 2010.

Estonia's pension system is organized in three tiers, known as pillars, with the first pillar referring to the mandatory state pension, the second pillar to employer-employee contributions (previously mandatory, now with an opt-out available). The third pillar consists of private pension schemes.

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Editor: Andrew Whyte, Mark Gerassimenko

Source: OECD

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