Estonia exports its pension system

  • 2009-12-02
  • By Liina Lelmi

TALLINN - Several CIS countries have expressed interest in acquiring a copy of Estonia’s second pillar pension system, as it would be faster and less expensive to acquire the entirety of an already functioning system than to start one from scratch. In a situation where the world population is getting older and fertility rates are low (in the developed nations), countries are revising their pension systems to prepare for the future.

“Estonia offers a compound solution,” Sergo Ulpus, the  president of eCSD Expert – Estonian Security Central Depositary – says. “Estonia exports its pension system with all its aspects – the build-up, the legal system and software to it.”
The first country to acquire the entire compound solution is Armenia, negotiations with other countries are ongoing. Latvia has already adopted Estonia’s software side of the pension system, having a slightly different pension system build-up itself.
Each country is unique with its needs and peculiarities, therefore the second pillar pension system is made suitable for each country, case-specific. eCSD Expert guides its clients through consultancies and works out the best solution for the specific country.

The uniqueness also also in the fact that the pension funds are centrally controlled by the stock exchange and managed by banks or respective funds.
The so-called first pillar is known as the “pay-as-you-go” system. The second pillar system works differently in that the government and the private person both contribute to the pension fund. In Estonia, the first and second pillar systems coexist. The third pillar is more rare to be found, and has basically the same structure as the second pillar, but without governmental input. The social security system in the U.S. is different; it’s a federally-mandated system with pension taxes collected by employers.

Most of today’s pension systems around the world were created in the ’60s, in an environment of high birth rates and shorter life expectancies. These systems are often found outdated now, due to today’s low birth rates and longevity, where the Estonian case might be a solution for many.