Key issues
- The spread of COVID-19 was accompanied by economic problems: people became ill, their workload and/or wages were reduced, they became unemployed due to their company’s financial difficulties, and so on.
- The proportion of people who are living in relative poverty has remained around the 21-22% mark in recent years, but the proportion of people who are living in absolute poverty has steadily been declining.
- In the last ten years life expectancy in Estonia has grown faster than in the EU
At the same time, gender, socio-economic, and regional inequalities in terms of health indicators remain in place.[1]
Political and institutional developments
At the political and institutional level, the fields of employment and social protection for 2020-2021 have largely been based on the welfare development plan which was approved by the government in 2016. In 2021, the Ministry of Social Affairs started preparing a new national welfare development plan for 2023-2030 (this is a continuation of the previous development plan). That development plan should enter into force on 1 January 2023.[2] The forthcoming document brings together the strategic objectives which are contained in the ‘Welfare’ policies, those of reducing social inequalities and poverty, increasing gender equality and social inclusion, promoting the equal treatment of persons who belong to minorities, improving employment, ensuring lengthy and high-quality working lives, promoting population policies, and increasing the well-being of children and families, all of which are scheduled to cover the period between 2023-2030, while taking into account the strategic goals which have been set out in the country’s long-term development strategy, ‘Estonia 2035’, as well as observing UN global sustainable development goals and the directions of the European Union, along with international commitments.
In 2020, the government approved the ‘Public Health Development Plan 2020-2030’ which had been developed by the Ministry of Social Affairs. Its main objectives are to increase the average life expectancy of the average person, improving the number years of healthy living they can expect, and to reduce health inequalities (between genders, regions, and levels of education).[3]
Legislative developments
In 2020, the government adopted two legislative amendment packages in order to create a legal basis for the adoption of COVID-19 virus-related measures, with the financial side being guaranteed by the supplementary state budget for 2020. As an example, these included the ‘Law on Support for Entrepreneurship and the State Guarantee of Loans’, tax provisions to facilitate economic subsistence and support for entrepreneurs, legal acts which relate to the social field to ensure the continuation of certain activities under the conditions of a state of emergency, and further legal acts which provide social protection during a state of emergency. Also in 2021, the government adopted a package of legal acts in order to implement measures which serve to prevent the spread of coronavirus and to mitigate its consequences. Its financial side will be guaranteed by the supplementary state budget for 2021. Of that budget, a total of EUR 16 million was earmarked as essential aid for the social sector, enabling municipalities to procure medical and hygiene supplies and increase their necessary social protection expenditures.[4]
At the beginning of 2020, the Riigikogu legalised the voluntary nature of the second pension pillar. When this entered into force in 2021, joining or leaving the second pillar became voluntary. According to politicians, the change increases people’s freedom and raises awareness of the pension system; investment opportunities were expected to expand and competition between funds to increase, into which funds people are now able to invest their money.[5] The change generated a good deal of controversy and also opposition, which even reached the Supreme Court. The president of Estonia first rejected the legal act which was intended to make the second pension pillar voluntary, and instead sent the draft to the Supreme Court for oversight. After waiting for the Supreme Court’s decision to be issued, the legal act was duly passed.[6]
The reason for this delay was the president’s desire to prevent poverty and coping difficulties in retirement. According to Kersti Kaljulaid, the withdrawal of funds which were normally collected in pension funds and their free use reduces the ability of the pension system to fulfil the objectives which have been set out for it. As the number of pensioners in Estonia will only increase in the future, and the number of people of working age is steadily decreasing, the president also saw a risk that the new legal act could serve to increase the number of people who would be at risk of sliding into poverty.[7] The National Audit Office, which provided its own assessment in the Supreme Court’s proceedings regarding the formation of the second pension pillar as a voluntary requirement, also acknowledged that the change in the pension system could lead to more people not receiving a large enough pension in the future, and that the change could also affect the incomes of current retirees.[8]
In Estonia, only the basic income is guaranteed to people in old age through the state pension. The provision of any income which is in excess of this should be ensured by means of a voluntarily-funded pension, both through the employer’s investment and also the employee’s own investment (and this share is practically non-existent for Estonian seniors as it will also be for future pensioners for at least the next few years). In the autumn of 2021, more than 150,000 people were leaving the second pillar (approximately one fifth of investors in the second pillar); with a total of 1.3 billion euros or almost a quarter of the collected assets flowing out of reserves. Thirty or more percent of 32-40 year olds are leaving the second pillar.[9] According to experts, those who are leaving the second pillar should invest their pension money independently and profitably, otherwise these people will have to expect a lower basic state pension in the future.[10]
In 2021, the government amended the State Pension Insurance Act, as a result of which the pension became more flexible than it was in 2020. People can choose the most appropriate time to retire, withdraw their pension in part, or suspend their pension if they wish.
Statistics and surveys
The economic downturn which was caused by COVID-19 led to the liquidation and bankruptcy of multiple companies, as well as a significant increase in the unemployment rate. At the end of 2020, the Unemployment Insurance Fund had 50,000 registered unemployed persons, which was much more than in 2019 (which only had a registered figure of 19,250 people). In October 2021, the number of unemployed stands at 44,000, somewhat less than the figure for 2020, but still in excess of the 2019 figure by a sizeable 13,250 people.[11]
According to Statistics Estonia, a total of 284,300 people out of Estonia’s total population (21.7% of the entire figure) lived in relative poverty in 2019, and 31,400 (2.4%) in absolute poverty.[12] A total of 2.4% of the Estonian population – 31,400 people – were living below the absolute poverty line in 2019, and therefore under the estimated subsistence minimum (which amounts to 221 euros a month).
Of the total Estonian population, 20.7% or 275,000 people had to live below the relative poverty line (of 611 euros a month). Both absolute and relative poverty endangers women, the disabled, and the unemployed in Estonia. The share of children who were living in relative poverty has decreased in recent years, but the share of children who are living in absolute poverty has remained at the same level or has even increased somewhat.[13]
A total of 6.5% of the Estonian population was severely deprived of material resources in 2020, which means that their living conditions were severely affected by a lack of resources, such as the fact that they could not afford to pay their bills, keep their homes warm, or take a week-long holiday away from home. This share has decreased when the figures are compared to those for 2019 (which was at 7.6%). In 2019, a total of 8.1% of women and 7.0% of men belonged in this group. The highest deprivation rate was amongst 50-64 year-olds (totalling 9%), while the lowest was in the 25-49 year-old age group (4.7%).[14]
Pension poverty
Upon reaching retirement age, the main regular income for most people is their pension. Estonian pensions are low when they are compared to salaries and, therefore, many people who are over the age of sixty-five years (41.4% in 2019) live in relative poverty, while over 75% of older people who are living alone live in relative poverty.[15] Estonia’s average pension (of 552 euros in 2021) is about 40% of the average salary. It also manages to keep the elderly from absolute poverty, but still leaves them in relative poverty (the relative poverty line in 2019 is 611 euros).
Unemployment poverty
When compared to the EU average, the poverty risk for the unemployed in Estonia tends to be higher (totalling 49.1% for the EU average and 52.5% for the Estonian figure respectively, in 2019). As a share of GDP, Estonia contributes less to passive labour policy measures than the European average (with a figure of 0.41% for Estonia and 0.66% for the EU respectively, in 2019).[16]
Employment depends to a large extent upon the quality of one’s working life. In 2020, labour inspectors identified 11,530 violations of occupational health, safety, employment, maritime work, or drivers’ working and rest time requirements. Violations were detected in about 83% of those companies which were inspected. A total of 3,622 occupational accidents were registered, including 915 serious occupational accidents and nine fatal occupational accidents. There were one-fifth fewer serious occupational accidents than in 2019.[17]
Health status
Life expectancy in Estonia has increased more than in any other EU country since 2000. The health status of the Estonian population is currently approaching the EU average, mainly due to the reduction in deaths due to ischemic heart disease and stroke. Unfortunately, there are large gender, socio-economic, and regional inequalities of health in Estonia. On average, women live almost nine years longer than men. In 2020, the life expectancy in Estonia was 74.4 years for men and 82.8 years for women. Life expectancy rates for women remained at the same level as in 2019, while those for men increased by 0.1 years. Inequality is even more extreme among the less well-educated population of Estonia. Low-educated women in their thirties live ten years longer than low-educated men. Regional inequalities are also perceptible in the life expectancy of the Estonian population, especially between urban and rural areas. For example, the expected life expectancy rates for the population of Tartu County is 4.5 years longer than that of the residents of Ida-Viru County in the north-eastern part of the country.[18]
Men live 55.5 healthy years and women 59.5 healthy years. When compared to 2019, Estonian men live healthy lives which are one year and five months longer. The healthy life rates for Estonian women have increased by one year and eleven months.[19]
Major public debates
The issue of pensions became central in the years 2020-2021. Although there is a high risk of poverty for pensioners in Estonia, Estonians are not actively preparing for retirement. Compared to the euro area average, Estonians spend significantly less money on equities, voluntary pension funds, and other investments. A total of 23% of people in the euro area invest in voluntary pension funds, compared to only 7.8% in Estonia.[20]
The lack of readiness for a future pension as well as the voluntary nature of the second pension pillar have served to trigger a wide-ranging debate in Estonia. The shortcomings of the current pension system which, according to several experts, has been one-sided and takes little account of people’s interests, have been sharply criticised. According to the assessment by Georg Männik, the former director-general of the Social Insurance Board, who has been active in the field of pensions even prior to the reform, it is time for analysts to admit that the main goal of funded pensions has never been to improve the retirement welfare of the population but the development of capital markets instead. In Georg Männik’s opinion, the primary goal of creating the funded pension was indeed to develop the capital markets with cheap money. Cheap money means that banks are saved from the cost of raising money and the obligation to provide a certain return to the real owners of the money, these being people themselves.[21] Georg Männik questioned the funded pension system as a whole.
He is opposed by Ringa Raudla, a professor of fiscal management at the Ragnar Nurkse Institute at TUT, who believes that the surest way to secure a pension is by investing in special pension funds. She criticises the voluntary nature of the second pillar and argues that the current round of pension reforms have given people freedom but may not make their lives any easier, as this particular reform has deprived them of an important way of being able to secure a pension. Ringa Raudla also questions other options for raising money for retirement such as, for example, investing the collected assets in property holdings or shares, and hoping that they will provide a sufficient return for the rest of their lives. This route may indeed yield a higher return than an insurance contract might offer, but investing definitely involves uncertainty and not all people have the desire or ability to invest after retirement. Financial crises are also a problem when it comes to making investments as they can significantly reduce the value of assets and, in a worst case scenario, even eliminate additional income.[22]
Ringa Raudla’s views command a degree of agreement. The pension systems both in Estonia and around the world as a whole are trending towards increased responsibility by people themselves, and the role of funded pensions is becoming more and more important. Many developed countries have created conditions which encourage additional voluntary savings amongst those groups in society which can save more.
The pension debates have proved to be of noticeable help. The SEB Baltic Pension Readiness Survey of 2021 showed that the communication of pension reforms in the Baltic states has made people more interested in their future income. While in previous years only 20% of people were interested in their pension assets, this figure can now be placed at 40%. At the same time, the Estonian people have been more passive than the residents of Latvia and Lithuania. The main reason for people not wanting to plan for retirement is complexity. As one’s retirement age is often decades away, it is not easy to predict who we as individuals will be by then, or what our health will be, what our economic situation will be, who will be close to us, and so on. Almost three-quarters of Estonians realise that they do not have enough assets and savings to cope in retirement, but nevertheless most of them do not plan to start saving for retirement.[23]
The same findings are confirmed by research in the field of economic psychology and behavioural economics. People may not make rational decisions even if they have a lot of information and good financial knowledge, mainly because people prefer short-term goals to long-term goals, and future prosperity is too inconceivable for it to be pursued in favour of spending money today. Moreover, we may not perceive the future us as ourselves; people see setting money aside for growth towards distant future as a loss of their money. On the other hand, people tend to be optimistic and confident, thereby underestimating the possibility of declining incomes. Rather, positive events such as pay rises or promotions are forecasted, paying less attention to health risks and other negative scenarios.[24]
The OECD also refers to risks in Estonia regarding future pensions. From the OECD’s point of view, Estonians live and spend too much in the present day; the future is still far off in the distance and there is no concern being felt about it. The OECD’s 2020 Pensions Review which was published at the end of 2020 emphasises the long-term nature of saving for one’s pension and the need to continue to do so during the crisis.[25]
It is also worth highlighting the discussion at Paide Opinion Festival on the topic, ‘Empty hands or a dignified retirement?’ which was held in 2021 and which was led by the Ministry of Social Affairs, with invited guest speakers including Aimar Altosaar (MTÜ Kuldliiga), Tõnu Pekk (Tuleva), Georg Männik (the social security and health care expert), and Kristjan Kangro (Change Invest).
The debate reflected the existing conflicting views regarding future pensions which had emerged from previous debates, but the main conclusions were that there was a broad consensus that we are in a qualitatively new situation in which a state-guaranteed pension was not the answer to coping economically in old age. You need to start preparing for old age early on, and it is important to inform and encourage people to use different ways in which they can raise money for their retirement, be it investing in the second or third pension pillar, or investing in stocks, property, cryptocurrency, etc. For many, the solution may be working in retirement as a new norm, which requires a healthy and physically fit lifestyle, as well as continuous self-improvement and learning in order to remain competitive in the labour market at the age of sixty-five or over. Children can also be the best pension pillar, although opinions were divided here. Critics argued that children should not be placed under such a burden as having to support their parents in their retirement. It was cooperatively found that it is important to raise people’s awareness regarding today’s choices having a direct impact upon their future ability to cope on their own.
Promising practice
Estonia has an innovative and well-developed digital healthcare system in place. The state offers a good many health-related tools and services online. These include a digitised patient medical history, the digital archive, digital prescriptions, referrals, the e-ambulance service, and also the e-consultation service. Estonia has recently adopted a central system for registering for a doctor’s appointment. More than 96% of the Estonian population have an ID card, which makes possible digital authentication and access to e-services via the internet.
Particularly good digitalisation can lead to better health outcomes. For example, doctors have online access to information on all medicines which have previously been prescribed to patients, which helps to prevent unwanted medication interactions.
Case description
Levila published an article entitled ‘Kodutute talveõhtud’ (‘The winter evenings of the Homeless’), in which they researched what the residents of two of Tallinn homeless shelters dream about on cold winter evenings.
‘They want a place in the dorm. The kind of place in which they can also spend time during the day. Then they don’t have to catch a bus to get anywhere. They want their own job and everything else… One of them is still making plans, but only tentatively because he has made plans before and still ended up back here again… and again. He’s been in this shelter and that shelter, he’s been in a social housing unit, and most recently he rented an apartment for himself. He’s currently working at the Food Bank. Help is needed in the warehouse; he hands out packages to the women there. He cuts frozen meat. Ten kilo frozen blocks come in from the store which cannot be distributed in that form. Portions must be prepared and film-wrapped, all as required, entirely clean and safe. He used to distribute food in a hospital, so he knows the job well. Not much is paid to him, though, just 3.80 EUR a day. But over the course of a month it seems to be enough for him to hold onto a place in the social housing unit. But other expenses are needed too. He can also eat at work as it’s different there from the soup kitchen. Meals are also given as takeaways, and those are always good to have: four bars of Anneke chocolate in the bag; casserole in a jar.’[26]
Recommendations
- Estonian people need to be provided with better preparations for retirement. In order to prevent the risk of poverty for future retirees it is necessary to develop people’s financial literacy, to encourage them to save and channel money into voluntary pension funds and other investments.
- Health education needs to be increased in order to be able to reduce health risks. More than half of the life years which are lost in Estonia are due to premature mortality and morbidity, with risk factors or risk behaviour playing a large part in this.
- The quality of working life in Estonia requires more serious attention; there are too many violations taking place in occupational health, safety, and labour relations requirements, and too many serious accidents happening at work. Awareness needs to be developed by employees and employers about the different aspects of a working life. Employees and employers are not sufficiently aware of their employment rights and obligations, or of the potential risks involved in the work they undertake or even of the opportunities such work may offer.
[1] Tervise Arengu Instituut. Tervena elatud aastaid tuleb tasapisi juurde, Terviseinfo.ee, 11.09.2018.
[2] Sotsiaalministeerium. 2021. Heaolu arengukava 2023–2030 koostamise ettepanek.
[3] Sotsiaalministeerium. 2021. Rahvastiku tervise arengukava 2020-2030.
[4] Kohalik Omavalitsus. 2021. Omavalitsustele kavandatakse lisaeelarvega 46 miljonit eurot, 19.03.2021.
[5] Rahandusministeerium. 2019. Seletuskiri kogumispensionide seaduse ja sellega seonduvalt teiste seaduste muutmise seadus (kohustusliku kogumispensioni reform) eelnõu juurde.
[6] Riigikohtu põhiseaduslikkuse järelevalve kolleegiumi 09.06.2020. a määrus kohtuasjas nr 5-20-3.
[7] Kook, U. 2020. President jättis kogumispensioni reformi seaduse välja kuulutamata, ERR, 07.02.2020.
[8] Riigikohtu põhiseaduslikkuse järelevalve kolleegiumi 09.06.2020. a määrus kohtuasjas nr 5-20-3.
[9] Pensionikeskus. 2021. Koduleht.
[10] Rahandusministeerium. 2021. II samba küsimused ja vastused.
[11] Eesti Töötukassa. 2021. Peamised statistilised näitajad, 19.06.2020.
[12] Statistikaamet. 2021. Suhteline vaesus.
[13] Ibid.
[14] Statistikaamet. 2021. Vaesuse ja ilmajäetuse määr vanuserühma ja soo järgi.
[15] Statistikaamet. 2020. Suhtelises vaesuses elavate inimeste arv vähenes.
[16] Eurostat. 2019. European Statistical Recovery Dashboard.
[17] Tööinspektsioon. 2021. Töökeskkond 2020.
[18] Tervise Arengu Instituut. 2021. Tervisestatistika ja terviseuuringute andmebaas.
[19] Statistikaamet. 2021. Statistikaamet: oodatava eluea kasv on pidurdunud, ERR, 25.08.2021.
[20] Eesti Pank. 2019. Estonian Household Finance and Consumption Survey: Results from the 2017 wave.
[21] Männik, G. 2019. Georg Männik Eesti Panga hoiatusest: inimene ei pea riskima oma pensioni pärast kõigega, Eesti Päevaleht, 15.10.2019.
[22] Raudla, R. 2020. Ringa Raudla: pensionireformi kahjulik mõju, 03.12.2020.
[23] Luminor. 2020. Värske uuring: pensioniks ei olda valmis, kuid ka koguda ei soovita, Rahageenius, 09.07.2020.
[24] Arenguseire Keskus. 2019. Tuleviku-minu rahaline heaolu.
[25] Arenguseire Keskus. 2021. Pensioniks tuleb koguda ka kriisi ajal, 15.02.2021.
[26] Mets, M. 2021. Kodutute talveõhtud, 01.03.2021.
