The Estonian pension system consists of three pillars: (i) public pay-as-you-go (PAYG); (ii) individual accounts that are mandatory for new entrants to the labor force and workers born after December 31, 1982; and (iii) voluntary individual accounts. Until June 2009, workers contributed 2% of earnings to the second-pillar individual accounts and employers contributed 20% of gross payroll, of which 16% was diverted to the PAYG pillar and the remaining 4% was diverted to the employees’ individual accounts.
In an effort to ensure the sustainability of the system throughout the global economic crisis, the Estonian government passed a law in June 2009 that temporarily reallocated the entire 20% employer contribution to the first pillar through 2010. The employer contribution will gradually revert to the original allocation by 2012. Moreover, the law allows workers to temporarily reduce their second-pillar contributions through 2012.
Regarding retirement age, men can retire at age 63 with at least 15 years of employment and women at age 60 and 6 months with at least 15 years of employment. However, on April 2010 the Estonian parliament passed a new law aimed at the gradual increase in retirement age for men and women beginning in 2017, until it reaches age 65 in 2026. Moreover, the retirement age for women is gradually increasing by 6 months each year until it is equalized with that of men at age 63 in 2016.
The April 2010 law also requires the government to conduct a study in 2019 to determine whether additional measures, such as a further increase in the retirement age, may be needed to ensure the long-term sustainability of the pension system.
Sources: Social Security Programs Throughout the World: Europe, 2008; "Baltic States," International Update, August 2009, U.S. Social Security Administration; "Estonia May Raise of Retirement Age," RIA Oreanda News Agency, March 22, 2010; "International Headlines," Mercer, April 7, 2010; "Estonian Government Backs Increased Retirement Age," HIS Global Insight Daily Analysis, April 9, 2010.