OECD expert: Estonia's ongoing pensions quandary

Maciej Lis.
Maciej Lis. Source: Epp Ehand/ERR

Estonia's pension system is under the microscope again as the coalition government aims to make mandatory contributions, the so-called second pillar, optional, meaning people with money in the fund to date may be able to get at their funds as early as 2021.

Speaking to ERR Brussels correspondent Epp Ehand, Organisation for Economic Co-operation and Development  (OECD) economist Maciej Lis looked at whether this is a wise move, and what the solution to old age poverty both now and in the future.

Comparing pensions across countries is difficult, due to wide-ranging differences in schemes, taxation, retirement ages etc. However, a raw figure can be obtained simply by dividing a country's total pension payments in a year by the number of pensioners claiming them. Doing this puts Luxembourg at the top, on €2,219 per month, and Bulgaria lowest at just €156 per month. Estonia lies near the lower end of the scale at €450, placing it 20th out of the EU 28. Neighboring Latvia falls even lower at €296, while Finland is in 8th place at €1,529.

One problem facing Estonia, Maciej says, is that contributions will go down by as much as over 20 percent when the pension reform becomes reality, while at the same time the Estonian population is ageing at around the OECD average, meaning there will be fewer people in future contributing to a growing number of dependants.

Removing the second pillar mandatory requirement will allow people to raid their pension pots, but at the same time diminish confidence in the system, Maciej argued, while at the same time the problem about what to do regarding old age poverty is a pressing issue right now, and in itself would require increased contributions.

Maciej also did not recommend people take advantage of the ability to opt out of the second pillar, since people do not ever know how long they are likely to lie – the average is higher than many young people think when pressed on the issue – so even if people do leave the system, it would be wise to find alternative investment options rather than squander the money, he said.

Editor: Andrew Whyte

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