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The Estonian Old Age Security System in 2020

By Mari-Liis Viirsalu, University of Tartu

Historically, taking care of the elderly in Estonia was the responsibility of the local municipalities. In the 1920s, a countrywide state pension was introduced to special occupational groups such as military, state and municipality officials as well as teachers. During the socialist period (1946-1991) a pension system was introduced covering the entire workforce with benefits being granted based on the number of years in employment. In 1999, the pension insurance system of the independent Republic of Estonia set the individual earnings throughout the working career as a novel basis for pension formation. In the early 2000s, following the suggestions of the World Bank, a multi-scheme pension system was introduced consisting of a public pension scheme (also referred to as Pillar I), a mandatory fully funded pension scheme (also referred to as Pillar II), and a voluntary fully funded pension scheme (also referred to as Pillar III). Challenges such as rapid aging and the projected decline of the working age population have started a reform process which continues to this day. In 2020, ‘standard protection’ in Estonia is primarily provided through mandatory participation in public pension schemes and mandatory or voluntary participation in a private capital-funded pension scheme. The ‘topping up’ of the standard protection can be achieved by voluntary participation in additional private pension plans and life and/or investment insurance. To guarantee ‘minimum’ subsistence levels for the elderly, the pension system contains both a minimum statutory pension level for pensioners with low pension income as well as a special pension for those who do not qualify for any other public old age pension. In addition, an annual allowance is provided to the beneficiaries of low pensions who live alone or are care-dependent. Outside the pension system, minimum income is provided through general social assistance measures.

Standard Protection in Old Age

The pay-as-you-go (PAYG)-financed statutory old age pension scheme (riiklik vanaduspension) covers the majority of the Estonian workforce, including the self-employed and civil servants, and aims to guarantee a moderate level of pension income in old age. Specific regulations determine the early retirement rights (soodustingimustel vanaduspension) of numerous groups of persons engaged in hazardous or arduous work. The list of jobs, production areas, professions and positions considered as hazardous work is determined by government decrees.

The standard protection of the Estonian pension system used to incorporate numerous public pension schemes introduced in the 1990s and 2000s either for responsibility-related public positions or for compensating low wages in high-risk professions. The schemes provided favourable retirement conditions by granting benefits based on earnings received at the end of a person’s career but were legally fragmented in terms of qualifying conditions, financing and administration. Several of these schemes have been gradually repealed: the parliament pension (closed in 2003); the judge’s pension, the national audit pension, the chancellor of justice’s pension (closed in 2012); as well as the prosecutor’s pension, the police officer’s pension and the military service pension (closed in 2019). Pension supplements for other civil servants were also repealed in 2009. Persons who were still in service at the time of the previous regulation have the right to entitlement to pensions under the old rules.

One special public pension scheme continues to exist to this day as part of the standard protection, namely, the superannuated pensions scheme  (väljateenitud aastate pension). It mandatorily insures persons with professions or positions (e.g. underground workers, artists, and teachers) that cannot be performed professionally after reaching a certain age preceding the standard retirement age of the statutory old age pension scheme. Individuals who qualify for the pension from this scheme can opt for the payment of their benefits from the statutory old age pension scheme once they meet the standard requirements in terms of standard retirement age and minimum insurance periods and in case this results in a higher pension for the beneficiary. The abolition of the early retirement options provided by both the statutory old age pension scheme and the superannuated pensions  scheme has been in a process of preparation for over a decade. It is argued that the improvement of working conditions in professions with early retirement rights and the rising life expectancy will enable workers in these fields to stay in the labour market longer.

The population insured in the statutory old age pension  scheme is automatically enrolled in the mandatory funded pension (kohustuslik kogumispension). Participation in this fully funded private scheme is mandatory for persons born after 1982 and involves a fixed share (2%) of the monthly gross earnings (paid by the employee and transferred by the employer) and an additional fixed share of 4% as part of the 20% mandatory statutory pension insurance contributions1 (transferred to the scheme by the state institution). In contrast, all those insured in the superannuated pensions scheme can enrol in the mandatory funded pension voluntarily. A reform adopted in March 2020 turned the mandatory funded pension into a voluntary scheme for pension insurance also for the insured in the statutory old age pension scheme. The reform introduced a possibility for withdrawal of the accumulated capital as a lump sum. The constitutionality of the reform was heavily debated. The reform took effect on 1 January 2021 after the Constitutional Review Chamber of the Supreme Court had decided that the changes were constitutional.


The pension income of mandatory public and private schemes can be ‘topped up’ by participating in the voluntary supplementary pension scheme  (vabatahtlik kogumispension), allowing everyone to make supplementary contributions to pension funds to preserve their accustomed standard of living. The fully funded private scheme is financed from insurance contributions and capital revenues, with participation being incentivised by tax reliefs on pension benefits. The policyholders have flexible options to change the amount of the contribution at any time, or even suspend contributions.

There is no tradition of occupational pension insurance in the private sector.2 The legislation allows employers to voluntarily increase the old age pensions of their employees by supplementing their participation in the voluntary supplementary pension scheme. Until now, this possibility has been relevant for only a small minority of mostly high-income earners. Creating special occupational pension funds for their employees has until now remained a theoretical option, lacking detailed regulation.


Minimum income is provided through different measures and schemes. Pension benefits of the statutory old age pension scheme cannot fall below the minimum statutory pension level. Those who do not qualify for any public pension but have reached the standard retirement age of the statutory old age pension scheme can apply for the national pension (rahvapension), i.e. a flat-rate benefit which is not means-tested. The provision of minimum income is further targeted through the pensioners living alone allowance (üksi elava pensionäri toetus) that was introduced in 2018 and is offered to retirees with low pensions who live alone or are care-dependent. The allowance is pension-tested and aims to support pensioners’ independence and engagement in economic activities. Minimum income options can be provided outside of the pension system through the general social assistance (sotsiaalabi) measures.


1 Due to the economic downturn caused by COVID-19, as of July 2020 the state has suspended the payment of the 4% of mandatory contributions for 1 year. The suspended payments will resume in 2023 for all participants in the scheme.

2 In order to preserve the vested rights of employees of employers whose residence or seat is in another EEA member state, the legislator has enacted the legal basis for defined-benefit occupational pension funds (määratud väljamaksetega tööandja pensionifond). The scheme is not pictured in the Pension Map.

Full Report:
Schneider S. M., Petrova T., Becker U. (eds.), Pension Maps: Visualising the Institutional Structure of Old Age Security in Europe and Beyond, 2nd ed., Munich: MPISOC, 2021.

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