Indexation to raise pensions 5 pct from April

Photo: Stanislav Moshkov / Õhtuleht

The Estonian Social Affairs Ministry on Thursday sent to the Finance Ministry for endorsement a draft resolution whereby pensions will rise by 5 percent beginning from April due to indexation.

The national pension index reflects the change in consumer prices and in the intake of the pension insurance component of the social tax last year. The Social Affairs Ministry proposes to set this year's pension index at 1.05.

According to data of Statistics Estonia, the consumer price index rose 3.9 percent last year while the Finance Ministry's figures show that 7.8 percent more money than the year before flowed into pension insurance. Calculated from these figures, the index works out at 1.07, in other words, pensions ought to rise by 7 percent.

However, the higher index would this year cause a big gap between the revenues and expenditures of the pension insurance budget, the Social Affairs Ministry said in an explanatory note. According to the Finance Ministry's forecast, the deficit would exceed 300 million euros, which would put financial sustainability of the state pension insurance system in jeopardy.

It also has to be taken into account that in years 2009-2012 the calculated value of the pension index was below 1.0 but pensions were not cut. The State Pension Insurance Act obliges the government to add or clear the part of index that was not increased or reduced within five years, hence the proposal to set the index at 1.05.

The change would raise the old-age pension of a person with 15 years of pensionable service to 197.59 euros a month. With 44 years of pensionable service the pension would rise to 334.42 euros.

The decision to increase the pensions requires an additional 51 million euros from the state budget. There were 407,347 pensioners in Estonia at the beginning of this year.