Isamaa leader Helir-Valdor Seeder confirmed the coalition government’s agreement on pension reform, which he was the driving force behind to a large extent, to ERR Wednesday. Echoing comments he made after the agreement was struck on Monday evening, Seeder said that an extraordinary hike in pensions, which some in the government would link directly to savings made by the reforms, was less of a dead cert until budgetary opportunities to do so arose. He did not rule out the increase either, however.
Appearing on ERR’s politics interview broadcast Otse uudistemajast on Wednesday morning, Seeder said that discussions were ongoing and pensions increases will be met as far as is possible.
The coalition of Centre, the Conservative People’s Party of Estonia (EKRE) and Isamaa agreed Monday evening to make the so-called second pillar of Estonia’s pension system optional. Since 2010, membership of the scheme, which involves 2 percent payroll contributions from employees to match those from employers (the “first pillar”) has been mandatory for most working people. Critics say the system does not perform well in relation to the economy as a whole, and that people should have more control to invest as they wish, including in their own private pensions schemes (the “third pillar”).
Isamaa made removing the second pillar a central part of its pre-election manifesto and, while the second pillar will remain, the government says it is putting a bill to give employees the chance to opt out before the Riigikogu this autumn, coming into force at the start of 2020 should it pass the vote.
While spokespersons from Centre and, to a lesser extent, EKRE implied that the move could directly free up resources to impose an extraordinary pensions hike, Isamaa’s leader, though reportedly not its ministers as a whole, urged caution on this and said the two policies were not directly linked.
The three relevant ministers are social affairs (Tanel Kiik, Centre), finance (Martin Helme, EKRE) and justice (Raivo Aeg, Isamaa).
“This [the pensions hike] hinges on the budgetary capacity of the state and will happen in in conjunction with the state budget and budgetary strategy,” Seeder told ERR’s Mirko Ojakivi during the broadcast.
“It’s the way the coalition agreement is right now,” Seeder said, in response to a point made by Ojakivi that while Isamaa had a fixed date for its second pension policy coming into law (i.e. Jan. 1 2020), the Centre Party, the driving force behind the pensions hike, had received no such date.
“Just as no date was set for the reduction in alcohol excise duty (which happened in July-ed.), anyway this happened even faster than, say, second pillar reform,” Seeder continued, noting that he does not rule out the prospect of a pensions hike altogether, stating that it is the desire of all three coalition parties.
Pensions hike would be at cost of other state investments
He also stressed that should the budget for the pensions hikes be found, this would likely be at the expense of other areas of state investment such as free public transport, infrastructure investments or even research and development. Keeping the latter below 1 percent of GDP despite earlier promises to reach that level or higher, led to criticism of the government in June.
Seeder also said that while, should the bill to remove the mandatory second pillar pass, individuals are free to remove their accumulated funds from it immediately, he did not think there would be a rush on this, adding that Isamaa’s policy was the only option on the table when it comes to pensions reform.
People should also be given the option to rejoin the second pillar scheme after leaving, if they wish, Seeder said.
“This has been a point of discussion. We certainly do not want a policy so rigid that the decision [to opt out] is made for life, when the reform comes into play.
While critics of removing the second pillar have said that it could fall most heavily on lower earners, Seeder said that in general, a greater number of taxpayers will underwrite the pensions system in future.
“Without people and labor, no society can succeed. This also determines our future in the broad sense,” he said.
“In fact, the sustainability, vitality and future standard of living in our society will, in the broader sense, depend on demographic processes,” he continued.
The full Otse uudistemajast broadcast (in Estonian) is here.