Impact analysis of the changes to the pension system
LIINA KULU, MADIS LAAS, JAANIKA MERIKÜLL, KASPAR OJA, MARTTI RANDVEER, INDREK SAAPAR
In August 2019 the Estonian government confirmed the principles for the reform of the second pension pillar. The planned reforms are intended to make joining and leaving the second pillar voluntary. People will be able to choose between three options for how to use the pillar. The first is to continue saving in the second pension pillar as previously. The second is to stop contributing to the pillar but to keep all of the assets that have been built up on their pension fund account so far. The third option is to stop making payments into the second pillar and to withdraw everything that has been saved up in it so far.
The analysis focuses on the following topics. Firstly we consider the architecture of pension systems that international organisations like the OECD and the World Bank recommend to their member states, and the specific recommendations that have been given to Estonia. Secondly we analyse how the planned changes to the pension system will affect the size of pensions and the tax burden in the future. Thirdly we look into how the changes will affect the savings behaviour of private individuals. Fourthly we research how making the second pension pillar voluntary will affect the Estonian macroeconomy. Finally we evaluate how the proposed reform will impact the Estonian financial sector, focusing particularly on second pillar funds.
JEL classification: J26, J11, G17
Keywords: pension, pension system, size of pensions, population, macroeconomy, financial sector
Corresponding authorʼs e-mail address: martti.randveer [at] eestipank.ee.