People born at the turn of the century to retire at the age of 71
According to a forecast by the Ministry of Social Affairs, people born around the turn of the century may not retire until age 71, with pensions covering just a third of gross income.
Estonia is one of the few countries with a specific formula to calculate future retirement age. In 2018, it was decided that the old-age retirement age would be tied to life expectancy.
Currently, people can retire at age 64 years and nine months. But as life expectancy increases, so too will the retirement age in Estonia.
Magnus Piirits, an expert at the Ministry of Social Affairs, said that young people born after the turn of the century should expect to retire around age 71.
Relying solely on the state for retirement income won't be enough in the future. Those who have opted out of the second pension pillar and contribute only to the first can expect a significant drop in income after retirement.
"For someone earning the average wage — if they're relying only on the first pillar and have left the second — their gross state pension would be about one-third of the average salary. In today's terms, that's roughly €700 or about €100 less than current pensioners receive," said Piirits.
Currently, about one-third of the working-age population does not participate in the second pension pillar. According to Piirits, in the future, the gap between those who contribute to voluntary pension pillars and those who don't will widen. Put simply, the income of retirees who save into the second or third pillar will grow, while the financial situation of those relying solely on the first pillar will worsen.
"Elderly poverty is already high, partly because pensions are fairly uniform. With 300,000 pensioners in Estonia, a significant number live at the relative poverty line. In the future, those with only a first-pillar pension will also very likely fall into relative poverty," Piirits said.
Lauri Leppik, professor of social and population policy at Tallinn University, said it would make sense to reform the pension system so that people who exit the second pillar do not receive the portion of social tax contributed by the state. That state-contributed portion could instead be redirected back into the first pillar, ensuring a higher state pension in the future.
"I would understand allowing people to withdraw the 2 percent they've personally contributed. But the fact that they can also withdraw the 4 percent in social tax undermines the social sustainability of the pension system. No other country with a funded pension system has done anything like this," Leppik said.
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Editor: Marcus Turovski, Urmet Kook
