The Estonian pension system is based on three pillars, two of which make up state pension and the third is supplementary funded pension.
The first pillar of state pension is funded from the taxes of current tax-payers, the second pillar is pre-financed: current tax-payers save up money for their own pension.
Payments made to the third pillar, also known as supplementary funded pension, ensure that the person making the payments can contribute to the maintenance of their standard of living in older age.
First pillar pensions are paid to the target groups under different legal acts. The largest share of these funds is made up of so-called ordinary pensions, regulated by the State Pension Insurance Act.
Pensions paid under the State Pension Insurance Act include:
- Old-age pension – state support to people who have reached retirement age
- Survivor’s pension – state support for families who have lost their provider
- National pension – minimum pension for people who have not or whose provider has not contributed enough to the pension system and who thus do not qualify for old-age or survivor’s pension
First pillar pensions are administered by the Ministry of Social Affairs and funded pensions are administered by the Ministry of Finance. To apply for a first pillar pension, please turn to the Estonian National Social Insurance Board. To apply for a second or third pillar pension, please turn to your bank or insurance undertaking.
First pillar pension supplement for raising children
Pensions can be supplemented by pensionable service for raising children.
Supplementary pension for raising a child is paid to one person raising the child for each child born between 31 December 1980 and 31 December 2012, provided that the child has been raised for at least eight years and no pensionable service has already been calculated for the child.
For further information contact the National Social Insurance Board.
Additional mandatory funded pension payments to the second pillar
Mandatory funded pension is the second pillar of the pension system. For raising each child born on 1 January 2013 or later, the parent has the right to receive additional payments to mandatory funded pension (second pillar) from the state budget.
The amount of the payment is 4% of the Estonian average monthly income taxable by social tax (calculated by the National Social Insurance Board by 1 May based on social tax data for the previous calendar year). In 2016, 36.32 euros will be paid to the pension account.
Starting from 2017, pensioners living alone will be paid a 115 euro lump-sum benefit. A pensioner living alone is a person who has been living alone from 1 April to 30 September 2016 according to population register data. If the pensioner has been living alone for a shorter period of time, they shall not be considered a pensioner living alone.
Pension supplements are paid annually in October to retirement-age persons living alone whose monthly net pension is lower than 1.2 times average pension.
In Q2 2016, the average old-age pension was 391.4 euros, with the 1.2 times average rounded to the nearest integer thus amounting to 470 euros. In other words, starting from 2017, pension supplements will be paid to retirement-age persons whose net pension is below the pensioner benefit line, i.e. below 470 euros.
No application is required for receiving the pension supplement, as the National Social Insurance Board will determine the right to receive the benefit based on various registry data. The benefit is not paid to persons receiving a pension from abroad or living in nursing homes.
The employment status of the retirement-age person does not affect the payment of the pension supplement; the same applies for other social support and income received by the person. The purpose of not factoring in employment income is to promote retirement-age employment, including part-time employment. The pension supplement is not taxed with income tax and the support payments are not considered income for the purposes of calculation of subsistence benefits.