Higher pensions every year

  • 2000-12-21
  • Aleksei Gunter
TALLINN - Parliament on Dec. 13 passed a state pension insurance bill that foresees indexation of pensions, one week after thousands of Tallinn pensioners protested against low retirement income in front of the parliament building.

Starting from year 2002 the size of a pension will depend upon the consumer price index and the social tax paid by a person before reaching pension age. Every April the pension amount will be multiplied by the arithmetical mean of those two factors. According to the Bank of Estonia, the CPI in 1998 and 1999 was 8.3 percent and 3.3 percent, respectively. The bank forecast 4 percent to 4.5 percent CPI for the year 2000. Today an average pension barely exceeds 1,000 kroons ($58); the retirement age for men will be 63 years starting next year and for women from the year 2016.

The first step of the pension reform project states that from 2005 a certain amount of salary will go into the pension fund to provide for a person's pension after retirement. Today 20 percent of collected social taxes are meant for pensions; statistics show a ratio of 1.7 working people providing the pension for one retired person. Indrek Holst, Uhispank Life Insurance's president said that this cannot go on due to the present demographic situation in Estonia. "The amount of money for pensioners has always been limited, and now it seems to decrease," said Holst.

Holst firmly supports implementation of the second step of the reform that foresees certain transfers to the pension fund on behalf of the employees. The state would then set the amount of obligatory savings. Holst admitted that would slow down the development of a private pension insurance market, but also would help people to understand the necessity of pension insurance. Farseeing and responsible people can stop hanging on the mercy of fate and state, and obtain private pension insurance offered by banks or insurance companies. This is, in fact, the third step of the pension reform. Payments made to voluntary life assurance pension contracts are free from income tax.

As of Dec.18 5,422 pension insurance contracts were signed with Uhispank Life Insurance.