Minister of Social Protection Signe Riisalo (Eesti 200) said that it is important that the tax-free proportion of income of anyone who has reached retirement age continues to be at a level higher than that of the tax-free portion of income among the general populace.

Riisalo said: "If the income tax reform carried out in 2018 put working pensioners in a worse position than before, as earning wage income in addition to a pension led to a fall in the tax-free portion, then, starting next year, an income tax system is to apply in Estonia which no longer depends on [overall] income, and so is the same for everyone."

Minister Riisalo sent the related bill to its approval round Wednesday, which will amend the income tax-free threshold for all those who have reached pensioner age by next year.

As of April 1 this year, around 156,000 pensioners, or nearly half the total, will be receiving at least the average pension packet, the ministry says.

The threshold is higher than the income tax-free threshold which applies to the general working age populace, which stands at €700 per month from the start of 2025, as per the Reform-Eesti 200-SDE coalition agreement.

Eradicating the so-called tax hump (or bracket creep) by putting in this allowance was one of the Reform Party's pre-election pledges.

From April 1 this year, after annual indexation, pensions will rise on average by 10.6 percent, to €774 per month, with projections of a rise to €826 in 2025.

In 2025 and taking into account the tax-free allowance, income tax on pensions will be around €11 per month on average.

The ministry notes that when average pensions were made income tax-free in 2021, that average was 43 percent of the average working wage in Estonia, whereas in 2024 that proportion had risen to 49 percent.

Last year saw the largest on-year rise in pensions for 16 years, at 17.6 per cent, thanks in part to a one-off pensions hike.

The bill's coordination round includes it being put before relevant stakeholders, such as the union of Estonian pensioners associations (Eesti Pensionäride Ühenduste Liit), the Estonian Unemployment Insurance Fund (Töötukassa), the Estonian Chamber of Commerce and Industry ( Eesti Tööandjate Keskliit), the Pension Center (Pensionikeskus) and the Social Insurance Board (SKA).

It must then be the subject of a Riigkogu reading and vote.

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