Estonia's Multi-Pillar Pension System: Solid First Miles of the Marathon
11 Pages Posted: 17 Feb 2012
Date Written: December 1, 2011
Estonia inherited its social security system from the Soviet Union. Because the system was financially unsustainable and ill-equipped to grapple with the aging population, it needed fast and fundamental changes. We provide a brief overview of Estonian pension system reforms, which have resulted in a three-pillar system of 1) basic coverage, 2) mandatory participant contributions with government matching contributions, and 3) voluntary individual savings and insurance. (We focus more on the second and third pillars, because these facets of the reform are likely to be of interest to a broader audience.)
Estonian multi-pillar pension reform commenced in 1998 with legislation that established the third pillar. Second-pillar legislation followed in 2001, and this pillar itself became operational in 2002. We analyze whether pension reform so far has met initial goals of securing fiscal sustainability and guaranteeing adequate pensions. We also provide an overview of Estonia’s reform experience in terms of participation rates, competition among fund managers, client asset allocation, and pension fund performance. Finally, we provide an overview of the legislative and regulatory response to the deep economic recession in Estonia.
Keywords: Estonia pension system, multi-pillar pension system
JEL Classification: G10, G11, G23
Suggested Citation: Suggested Citation