No. 2




On Some Problems of the Pension System

31 October 2000


RiTo No. 2, 2000

  • Alari Purju

    Director of the Institute of Social Sciences, Estonian Business School

The necessity to reform the pension system becomes more pressing due to the ageing of the population. In relation with the pension system, one of the critical outputs of ageing is the decreasing of the workers-pensioners ratio, meaning the rise of the average number of people maintained by one worker.

An important factor in connection the impact of the ageing of the population is the retirement age. Although in Estonia the problem of ageing of the population is somewhat less serious than in several western European countries, raising the retirement age of both men and women to the age of 65 cannot be ruled out in the future. The precondition for it is the rise of the general life expectancy of the population.

There is no doubt that ageing of the population will indeed cause problems with the current financing of the pension systems, and some of the principal parameters of the system will have to be changed in order to accommodate these problems. For risk spreading, it is also necessary to diversify the possibilities for accumulating funds in order to guarantee the necessary income at the retirement. However, there is no one single correct recipe to solve this task. It is important to stress that pre-financing will not relieve the pension system of the difficulties caused by the ageing of the population; they will just appear in a different shape.

When dealing with the problem of the pension system, connections with the whole world have to be taken into account. It is essential to assess the opportunity cost of the intended measures, for example their effect on the housing market and employment.

Full article in Estonian

Alari Purju, born 1953, MA in economics from the Central European University in Prague 1988. Work: researcher at the Institute of Economics of the Estonian Academy of Science 1981-88, project manager at the Estonian Institute of Future Research 1992-95, professor at Tallinn Technical University, since 1996 dean of the Faculty of Economics. Has been adviser to the Minister of Economic Affairs 1997-99, visiting researcher at the Stockholm School of Economics 1993, at Bentley College USA 1991, at the Japanese Planning Agency 1998, etc. Affiliation: Estonian Economic Society, American Economic Association.