Prime Minister: no ultimatums between parties on pensions rise and reforms

Jüri Ratas (Centre) answering questions at Thursday's regular government press conference.
Jüri Ratas (Centre) answering questions at Thursday's regular government press conference. Source: Ken Mürk/ERR

Prime Minister Jüri Ratas (Centre) says no ultimatums have been given by any of the three coalition parties concerning pension reform and the related proposed pensions hike.

While the coalition agreed Monday evening to put a bill before the Riigikogu soon to make membership of the so-called second pillar of the Estonian pensions system, comprising employee contributions, differences of opinion had arisen on when and how to introduce a hike in pensions. Centre had wanted to tie this directly to the removal of the second pillar, while Isamaa's leader, Helir-Valdor Seeder urged caution, particularly on how the rise would be funded.

Part of the question revolved round the fact that how many people will opt out of the second pillar, mandatory since 2010 for most of those in employment and covering around 700,000 individuals, when the opportunity arises (from Jan. 1 2020 if the bill passes a Riigikogu vote) and whether they would be drawing out accumulated funds right away.

Speaking at Thursday morning's traditional government press conference, Ratas said the government has been working hard, holding a number of meetings on pension reform this week, and expressed hope that meaningful deliberations will continue at parliament, BNS reports.

The prime minister also underlined that the purpose of the reform, a central plank of Isamaa's pre-election manifesto, is to help pensioners get out of relative poverty. Isamaa got the policy into the coalition agreement before entering into office in the new administration in late April.

Arguments for and against

Isamaa's argument in favor of removing the second pillar – which will in fact remain under a different set up and is only being made optional – was that it is an inefficient way of managing funds and performs below the economy as a whole. Critics, in spite of what Ratas said, have argued that it will both hit lower earners hardest, and put a higher burden on future generations.

Those in the second pillar have 2 percent of their salary placed into a pension fund of their choosing, while the state adds 4-percentage-point sum from the individual's social tax into the account. Thus people quitting the scheme should free up money to the state, it is argued, and it is this money which some of those in favor or a pensions hike say should be used (i.e. current pensioners would get the money).

Those remaining in the scheme after it becomes optional will have their contributions paid into an investment account, within two years of application.

Withdrawal from these investment accounts will be possible at any time, BNS reports, though subject to income tax.

Earlier in the week, Tõnis Mölder (Centre), Riigikogu social affairs committee chair, had said that Seeder sticking to his line on separating the hike from the second pillar reform could scupper the entire bill.

Seeder himself has said he is not opposed to a hike per se, simply that its funding ought to be approached differently.

The other coalition party, the Conservative People's Party of Estonia (EKRE), sat more on Centre's side on this issue, with finance minister Martin Helme noting that the pension increase and the second pillar reform, while not formally linked, are in cash terms inevitably related.

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Editor: Andrew Whyte

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