Bank of Estonia: Pension reform to unsettle economy
Governor of the Bank of Estonia Madis Müller, financial stability department head Jaak Tõrs and monetary policy and economic studies dept. chief Martti Randveer explained the effects of changing the pension system on tax burden, growth, financial stability and future pensions at a press conference.
The Bank of Estonia presented its initial effects analysis today, work on which began immediately after the extent of planned changes accompanying plans of rendering the second pension pillar voluntary became clear. The central bank will publish the full version of its analysis in late October.
The Bank of Estonia finds that the government’s plan to amend the pension reform could lead to a short economic growth spike if the number of people who decide to withdraw funded pension sums proves noteworthy. This temporary acceleration would be followed by growth slowing or even turning into a recession that would impact people’s income.
The competitive ability of exporting companies is believed to take a hit when initial growth from consumption slows, while labor costs remain high. The abolition of mandatory funded pensions would increase the risk of poverty among the retirement-age part of the population as people would be given a chance to spend their savings in a very short window,” the Bank of Estonia finds.
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