State pension

The state pension is paid out of the social tax.

Employers pay 33% of the salary of each employee for social tax, 13% whereof is for health insurance and 20% / 16% is for the pensions of today’s pensioners.

There are two kinds of state pension: the pensions that depend on the work contribution (the old-age pension, the pension for incapacity for work and the survivor’s pension) and the national pension.

The old-age pension

The old-age pension consists of three components:

  • The basic amount, which today amounts to 1793 kroons and 44 cents.
  • The pensionable service period component , the amount whereof depends on the length of employment (i.e. years of employment and years deemed equal to employment, e.g. raising of children, compulsory military service, etc.) of the pensioner, which entitle him or her to the pension. These years are taken into account up until December 31, 1998. The monetary value of one year of employment in a monthly pension is 67 kroons and 94 sent.
  • The insurance component , the amount whereof depends on how much social tax has been paid on the salary of the pensioner since January 1, 1999. The amount of the insurance component is calculated on the basis of the sum of annual factors of pension insurance. An annual factor shows the ratio of the social tax paid on the person’s salary during the calendar year to the social tax paid on the average salary of the state. If social tax is paid on the average salary, the annual factor is 1.0 and its monetary value in a monthly pension is 67 kroons and 97 sent.

The relative importance of the insurance component increases with every year, which means that the state old-age pension depends more and more on the amount of social tax paid for each specific person or the amount of his or her salary during his or her entire life of employment.

Accounting for the salary in calculation of a pension is still relative – the amount of social tax paid on the person’s salary is compared with the amount of social tax paid on the average salary of the state. The State Pension Insurance Register stores information on the social tax paid on each person’s salary, but no actual money is collected – social tax amounts are paid out to pensioners as soon as received.

  • The solidary state pension insurance involves also redistribution of income from the persons with high salaries to the persons with low salaries. Firstly, the base component of a pension is equal to all, irrespective of the person’s salary. Secondly, the law also procures the minimum amount of the old-age pension – today it is 990 kroons – irrespective of the paid social tax.

A person is entitled to the state old-age pension, if his or her length of employment in Estonia is at least 15 years.

The national pension

The national pension procures minimum pension to those persons who are not entitled to the pension depending on the work contribution, if they have lived in Estonia for at least five years before applying for the pension. The amount of the national pension is 2008,8 kroons at the time being.

Other opportunities

Two new pension opportunities are the early-retirement pension and the postponed retirement pension.

A person can retire with the early-retirement pension up to three years before the legally stipulated retirement age, but in such case the amount of pension is reduced by 0.4% for each month falling short of the legally stipulated retirement age. As to the postponed retirement pension, the pension is increased by 0.9% for each month by which a person postpones his or her application for the pension.

Indexation

Indexation of pensions since April 1, 2002 makes to the increase of state pensions to correspond to the cost of living and receipt of social tax (growth of the salary fund). In other words – once a year pensions are multiplied by the index that depends equally on the changes in the consumer price index (cost of living) as well as on the yearly increase in received social tax.