State pays additional €227 million into second pillar pension fund

Pensioners lined up at ATMs.
Pensioners lined up at ATMs. Source: (Pärnu Postimees/Scanpix)

Between 2014 and the end of 2017, the state paid an additional €227 million into the second pillar pension fund, compensating all those who agreed to higher second-pillar contributions during the same period as well as those who voluntarily continued contributions in the years following the financial crisis.

Every month, Estonian residents pay 2 percent of their gross salary into the second pillar pension fund. Their contributions are topped up by the state to a total of 6 percent, which means that 4 percent come out of the state's coffers.

When the financial situation was difficult following the 2007-2008 financial crisis, in 2009 a law was passed that allowed the state to suspend its contributions to the second pillar. At the same time, residents were given the option to continue their contributions voluntarily, with the state promising to compensate them with higher contributions from 2014 to 2017.

220,353 people or 37 percent of all contributors to the second pillar opted for voluntary payments. They were compensated with an additional 2 percent between 2014 and 2017.

In 2013 the state also offered contributors the option to increase the contributions on their side from 2 to 3 percent. 106,140 joined. Like the people who contributed voluntarily during the crisis years, they were compensated with an additional 2 percent paid into the second pillar by the state.

There was an overlap between the two schemes of 40,410 people who contributed voluntarily in 2010 and 2011 as well as agreed to higher contributions from 2014 to 2017.

According to ERR's Estonian online news, compensating contributors for both schemes cost the state some €227 million between 2014 and December 2017.

The Ministry of Finance commented that they couldn't say whether or not the two measures paid off for the state, as they had been taken to compensate for suspended and reduced payments the state made into the second pillar.

Since the end of last year, everything is back to normal, with residents paying 2 percent on their gross salaries and the state topping up their contributions with the usual 4 percent.

Editor: Dario Cavegn

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