Statutory schemes of social security (Directive 79/7)

• Author: Anu Laas
• Pages: 56-60

56

7 Statutory schemes of social security (Directive 79/7)

7.1 General (legal) context

7.1.1 Surveys and reports on the practical difficulties linked to statutory schemes of social

security (Directive 79/7)

The old-age pension consists of three parts: base amount, length-of-service component

and insurance component. The full pension is indexed annually, based on consumer price

increases and social contribution revenues. The current legal principles of the state pension

insurance system have been effective since 1999-2000. At that time, the old-age pension

was linked to the amount of social tax paid by or on behalf of the person over their full

career. Mandatory funded pensions started from 2002. Possibilities for supplementary

funded pensions were created in 1998.

Estonia now has one of the smallest gender pension gaps, due to the influence of the

pension able years until 31 December 1998. After the indexation of state pensions of 1

January 1999, the insurance component is taken into account when calculating the pension

amount. The insurance component is personal, depends on the social tax paid for the

person. This means that the salary size has an influence of the insurance component.

Women in average, have paid less than men, women, therefor women often did not ‘earn’

the 1.000 index, and their work for one year is valued less than one year. 158

Ventsel (2018) has studied gender equality regarding social benefits. Ventsel found that

gender equality is not guaranteed in paying parental benefits and pensions. It also became

evident that both pension and parental benefit is influenced by part-time working, because

this keeps parents away from the labour market.159

After the paid parental leave period, parents have social security, but on a minimum level,

and therefore the indexed pension year will be at the minimum level (0.222). That means

that caring for children is punished in a monetary sense through the lower pension.

However, the state offers parents the possibility of claiming an old-age pension under

favourable conditions, in the right to receive an old-age pension one to five years earlier.160

Starting from 1 January 2018, an additional pension supplement in the amount of one

yearly rate (EUR 7.104161 as of 1 April 2020) will be calculated for one parent for each

child born before 1 January 2013, and who was raised for at least eight years. An

application and the written consent of the other entitled person must be presented to the

Social Insurance Board to receive the pension supplement. If several people are entitled

to a pension supplement for the same children, they must reach an agreement who shall

use this right. The agreement must be fixed in writing.

158 Starting from 1 January 1999, the pension accumulation period calculation is based on the social tax. Under

Article 26(7) of the State Pension Insurance Act, the Social Insurance Board calculates the pension; Index

1.000 is the annual social tax paid by all taxpayers. If the social tax paid was lower than the Estonian

average wages, the insurance component is also lower and the amount of one yearly rate is lower. If the

salary was 50 % of Estonian average wage, then the index is 0.500 and the value of pension year is also

50 % the calculated yearly rate (6 euros and 161 cents)

159 Ventsel, A. (2018), Soolise võrdõiguslikkuse tagamine sotsiaaltoetuste maksmisel (Ensuring gender equality

in paying social benefits), https://enut.ee/files/ventsel_angela.pdf.

160 State Pension Insurance Act, Article 10 https://www.riigiteataja.ee/en/eli/504022019001/consolide.

161 Index is expressed with with three decimal digits (thousandths), EUR 7.104 means here 7 euros and 10,4

cents.