First Pillar Of The Pension Should Remain Connected To The Salary

The Ministry of Social Affairs is planning to make changes in the national pension insurance system. As one of the changes, the old-age pension would, in addition to the base component, component calculated on the basis of years of pensionable service, insurance component, also include a compound component. Additionally, from the year 2037, a fifth and solidary part is planned to be added to it. The Chamber does not support these proposals, because this will motivate the employee to accept a larger part of the salary in the envelope and hinder raising of the salaries.

The planned amendment of the Pension Insurance Act will have an impact on the first pillar and is aimed at a more solidary and equal pension. This means that in the future, the pension would not be as dependant on the income, because the pension received from the first pillar would be equal for people. Although the aim is noble, the Chamber sees a threat to the correct payment of taxes. Therefore the Chamber proposed considering alternative solutions to making the pension system more sustainable.

In the Chamber’s opinion, such change would not motivate the employer to pay the employees larger and official salary. In essence the amendment means that due to the fact that the pension from the first pillar is equal anyway, the employee is motivated to accept a larger part of the salary in an envelope, because the minimum salary ensures the same benefits as in the situation where the employee would receive for example an average salary. Although the connection between the salary and the pension would remain through the second pillar, an employee can be motivated to accept envelope salary also by claiming that the employee himself can pay money to the third pillar.

In the Chamber’s opinion it is important that the first pillar would retain the connection to income. In that way employees would be motivated also in the future to refuse to accept envelope salary and to inform the Labour Inspectorate of such occurrences. If the connection of the pension with the income remains, the employers, too, would be more motivated to pay taxes, because this ensures their employees’ welfare in the future.

The official proposal of the Chamber is available here (in Estonian):