TALLINN — The Estonian government increased pensions by 5 percent this year, but the social tax’s portion for pension payments is not enough to bring in the cash used for monthly pension payments.

Meanwhile no solutions are being offered by the government, although in parliament a bond sale is being discussed.

The Social Insurance Board has received up to 1.3 billion krooni (€83.1 million) from the social tax, but monthly pension payments take more than [private_supervisor]1.6 billion krooni (€102.2 million) per month. The Tax and Customs Board paid 5.16 billion krooni (€329.8 million) to the pension fund this year, but the pension payments have taken 6.43 billion krooni (€410.9 million).

Therefore, the pension fund is earning a 1 billion krooni (€63.9 million) deficit each quarter. Currently the missing sum is covered by the pension fund’s reserves which should be dried out in summer. The problem will be more severe when the government plans to resume the second pillar payments next year.

The problem highlights the worries of some in Brussels and Berlin that Estonia’s drive toward the eurozone is based on unsustainable fiscal policy.

However, social affairs minister Hanno Pevkur the pension increase was the right move and the government is searching for more ways to increase pensions.

“Considering that about 40 percent of the Estonian elderly are living on the edge of poverty, then it is not right to reduce pension payments,” Pevkur told the business newspaper Äripäev.

Solutions?

Eiki Nestor, a former minister of social affairs and Social Democratic Party faction member told Äripäev that the needed sum could be covered by debt bonds and it would be a long-term political solution, the social tax should remain in the current level. He also said that the state has to resume the payments to the second pillars, otherwise people with second pillar-funded pensions will have a huge gap.

Minister of Finance Jürgen Ligi did not offer any concrete solutions when speaking to the press Thursday, but he dismissed worries about the pension fund’s insolvency, saying the reserve does not have a connection with the pension level or payment schedule.

“In the beginning of the pension reform planning process it was already foreseen that the pension costs exceed the income from the social tax, but it happened years later than was predicted,” Ligi told Äripäev.

That doesn’t answer what the government will do when the reserve is out, though. [/private_supervisor] [private_subscription 1 month]1.6 billion krooni (€102.2 million) per month. The Tax and Customs Board paid 5.16 billion krooni (€329.8 million) to the pension fund this year, but the pension payments have taken 6.43 billion krooni (€410.9 million).

Therefore, the pension fund is earning a 1 billion krooni (€63.9 million) deficit each quarter. Currently the missing sum is covered by the pension fund’s reserves which should be dried out in summer. The problem will be more severe when the government plans to resume the second pillar payments next year.

The problem highlights the worries of some in Brussels and Berlin that Estonia’s drive toward the eurozone is based on unsustainable fiscal policy.

However, social affairs minister Hanno Pevkur the pension increase was the right move and the government is searching for more ways to increase pensions.

“Considering that about 40 percent of the Estonian elderly are living on the edge of poverty, then it is not right to reduce pension payments,” Pevkur told the business newspaper Äripäev.

Solutions?

Eiki Nestor, a former minister of social affairs and Social Democratic Party faction member told Äripäev that the needed sum could be covered by debt bonds and it would be a long-term political solution, the social tax should remain in the current level. He also said that the state has to resume the payments to the second pillars, otherwise people with second pillar-funded pensions will have a huge gap.

Minister of Finance Jürgen Ligi did not offer any concrete solutions when speaking to the press Thursday, but he dismissed worries about the pension fund’s insolvency, saying the reserve does not have a connection with the pension level or payment schedule.

“In the beginning of the pension reform planning process it was already foreseen that the pension costs exceed the income from the social tax, but it happened years later than was predicted,” Ligi told Äripäev.

That doesn’t answer what the government will do when the reserve is out, though. [/private_subscription 1 month] [private_subscription 4 months]1.6 billion krooni (€102.2 million) per month. The Tax and Customs Board paid 5.16 billion krooni (€329.8 million) to the pension fund this year, but the pension payments have taken 6.43 billion krooni (€410.9 million).

Therefore, the pension fund is earning a 1 billion krooni (€63.9 million) deficit each quarter. Currently the missing sum is covered by the pension fund’s reserves which should be dried out in summer. The problem will be more severe when the government plans to resume the second pillar payments next year.

The problem highlights the worries of some in Brussels and Berlin that Estonia’s drive toward the eurozone is based on unsustainable fiscal policy.

However, social affairs minister Hanno Pevkur the pension increase was the right move and the government is searching for more ways to increase pensions.

“Considering that about 40 percent of the Estonian elderly are living on the edge of poverty, then it is not right to reduce pension payments,” Pevkur told the business newspaper Äripäev.

Solutions?

Eiki Nestor, a former minister of social affairs and Social Democratic Party faction member told Äripäev that the needed sum could be covered by debt bonds and it would be a long-term political solution, the social tax should remain in the current level. He also said that the state has to resume the payments to the second pillars, otherwise people with second pillar-funded pensions will have a huge gap.

Minister of Finance Jürgen Ligi did not offer any concrete solutions when speaking to the press Thursday, but he dismissed worries about the pension fund’s insolvency, saying the reserve does not have a connection with the pension level or payment schedule.

“In the beginning of the pension reform planning process it was already foreseen that the pension costs exceed the income from the social tax, but it happened years later than was predicted,” Ligi told Äripäev.

That doesn’t answer what the government will do when the reserve is out, though. [/private_subscription 4 months] [private_subscription 1 year]1.6 billion krooni (€102.2 million) per month. The Tax and Customs Board paid 5.16 billion krooni (€329.8 million) to the pension fund this year, but the pension payments have taken 6.43 billion krooni (€410.9 million).

Therefore, the pension fund is earning a 1 billion krooni (€63.9 million) deficit each quarter. Currently the missing sum is covered by the pension fund’s reserves which should be dried out in summer. The problem will be more severe when the government plans to resume the second pillar payments next year.

The problem highlights the worries of some in Brussels and Berlin that Estonia’s drive toward the eurozone is based on unsustainable fiscal policy.

However, social affairs minister Hanno Pevkur the pension increase was the right move and the government is searching for more ways to increase pensions.

“Considering that about 40 percent of the Estonian elderly are living on the edge of poverty, then it is not right to reduce pension payments,” Pevkur told the business newspaper Äripäev.

Solutions?

Eiki Nestor, a former minister of social affairs and Social Democratic Party faction member told Äripäev that the needed sum could be covered by debt bonds and it would be a long-term political solution, the social tax should remain in the current level. He also said that the state has to resume the payments to the second pillars, otherwise people with second pillar-funded pensions will have a huge gap.

Minister of Finance Jürgen Ligi did not offer any concrete solutions when speaking to the press Thursday, but he dismissed worries about the pension fund’s insolvency, saying the reserve does not have a connection with the pension level or payment schedule.

“In the beginning of the pension reform planning process it was already foreseen that the pension costs exceed the income from the social tax, but it happened years later than was predicted,” Ligi told Äripäev.

That doesn’t answer what the government will do when the reserve is out, though. [/private_subscription 1 year]

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