Social protection expenditure on the rise

Posted on 18 June 2018, 11:00, Marin Tasuja

In 2017, the social protection field was mostly characterised by growth trends: the average old-age pension exceeded 400 euros, labour market measures are being used more and there is a greater variety of them, the expenditure on family allowances increased and new allowances for large families were added. The number of old-age pensioners and subsistence benefit recipients has declined.

At the beginning of 2018, there were approximately 375,600 pensioners in Estonia, most (81%) of them old-age pensioners. While the total number of pensioners has been constantly increasing in recent years, it decreased by more than 41,000 year on year by early 2018. As a result, the percentage of pensioners in the population dropped to a level (28.5%) last seen 10 years ago. This is due to the 2016 work ability reform, which has substantially reduced the number of recipients of the pension for incapacity for work among all pensioners. While in early 2017, there were approximately 95,000 persons receiving the pension for incapacity for work in Estonia – almost a quarter of all pensioners –, a year later, there were 41% fewer of them, and their proportion had decreased to 15% of all pensioners. According to the new methodology, reduced work ability is assessed instead of assessing incapacity for work. At the end of 2017, there were 43,900 persons with reduced work ability in Estonia, almost a third of whom were assessed as having no work ability.

The average pension continued to increase in 2017. The increase was the fastest in recent years, reaching the highest level since the economic crisis. In 2017, the average pension increased by 7%. The average old-age pension exceeded the 400-euro margin and increased by 19 euros year on year. An old-age pensioner received an average of 386 euros per month in 2016 but 405 euros per month in 2017. The average pension for incapacity for work was 233 euros (an increase of 13 euros), survivor’s pension 197 euros (an increase of 10 euros) and national pension 137 euros (an increase of 11 euros) per month.

Due to increasing life expectancy and ageing of the population, there is an increasing need for care services for adults. In 2016, special care services were provided by 145 institutions and general care services provided outside home by 152 institutions. Over the past decade, the number of care service providers has increased by almost 50%. There were 20 new institutions in 2016 (most of them were providing special care services). At the end of the year, there were 13,200 adult users of care services (including almost 5,600 users of special care services), i.e. almost 4% more than in the previous year. In 2016, there were 39 providers of the substitute home service for children; the service was used by fewer than 1,100 children. While the number of children in substitute homes has remained largely the same in recent years, it has decreased by 35% over the past decade.

The number of disabled persons continues to grow. At the beginning of 2018, there were 153,000 disabled persons in Estonia, constituting 11.6% of the total population. The number of disabled persons increased by more than 3,000 in 2017, having increased in recent years by approximately 2% year on year. The percentage of disabled persons is the highest among the elderly. At the beginning of 2018, a quarter of persons aged 55 or over were disabled but a mere 5% among those younger than 25. In 2017, over 67 million euros was paid as social benefits for disabled persons – 4% more than in 2016.

The number of health insurance benefit cases by type of benefit, 2007–2017

Since the 2009 sick leave reform, which resulted in a decrease in the number of health insurance benefits by more than a third within a year, the number of benefits has remained largely stable. In 2017, the number of various benefits paid amounted to 506,000, which is 5% less than in the previous year. More than a half of all benefits were sickness benefits, a quarter were care benefits and almost a fifth were dental care benefits. Approximately 94,000 dental care and denture benefit applications were submitted in 2017. Over the past five years, the number of dental care benefits has decreased by almost a third. This is due to changes in the dental care benefits system: a new adult dental care benefits system entered into force on 1 July 2017. The number of benefits has not increased because many dental clinics have not concluded the services contract with the Health Insurance Fund. In 2017, a total of 151 million euros was paid as health insurance benefits, which is 8% more than in the previous year. Sickness benefits and maternity benefits accounted for the largest share of these benefits (43% and 32%, respectively). The expenditure on dental benefits remained largely unchanged at 9 million euros. Various benefits accounted for a little more than a tenth of the expenditure covered by mandatory health insurance.

Number of recipients of unemployment benefits by type of benefit, 2007–2017

After the economic crisis, the number of unemployed persons decreased, and there is also less need for labour market allowances. The number of unemployment allowance recipients as well as the number of recipients of benefits paid to unemployed people have remained largely stable since 2011, and have shown a slight downward trend over the last year. In 2017, unemployment insurance benefits were paid to 27,400 persons, which is 7% less than in the previous year. Compared to 2010, when unemployment peaked (unemployment rate stood at 16.7%), the need for unemployment insurance more than halved. In 2017, unemployment allowance was paid to 23,500 persons (5% fewer compared to 2016), benefit upon lay-off to 5,700 persons (28% fewer) and benefit upon insolvency of the employer to 1,300 persons (19% fewer). The average unemployment insurance benefit in 2017 was 378 euros per month, which is 12 euros more than the year before. Upon lay-off, the average benefit was 1,757 euros and upon insolvency of the employer, 2,586 euros.

Labour market measures are being used increasingly. In 2017, the labour market services and programmes offered by Eesti Töötukassa (Estonian Unemployment Insurance Fund) were used approximately 117,000 times, which is 14% more than in 2016 (it is important to note that a person may use more than one service or programme). As in previous years, career counselling and labour market training were the most popular services, with both making up a sixth of all programmes. The use of services for working and inactive people is on the rise. Career counselling for that target group was used more than 14,000 times, which is more than a third more than the year before. Several new services were added in 2017 to help prevent redundancy and to help employers improve their employees’ qualifications. The new measures were refresher training and retraining with a training card, degree study allowance and a training grant for employers. The new measures were used 1,300 times. People with reduced work ability participated in training courses 17,000 times – the most in work-related training, work-related rehabilitation and work trials.

The number of subsistence benefit recipients increased in 2016 but started to fall again a year later. During 2017, a total of 88,700 applications for subsistence benefit to ensure the subsistence level were approved, making it the smallest number of applications in nine years. Compared to the previous year, the number of applications decreased by a tenth. The number of households receiving the benefit decreased by 1,200 and totalled 14,100. The total amount paid for subsistence benefits decreased by 2.8 million euros compared to 2016, but was 2.8 million euros more than in 2015. An average benefit to ensure the subsistence level was 206 euros per application, which is the second biggest after the 2016 amount. In 2017, in addition to the subsistence level, a rise in households’ standard of living, improving labour market indicators (the unemployment rate was the lowest in the past 9 years and the employment rate the highest in 20 years) and new types of benefits also affected the number of benefit recipients and benefit amounts.

There have been a number of changes to the procedure of payment of family and child allowances and benefits; as a result, the total amount paid for family allowances has increased rapidly over the past three years. In 2017, a total of 446.7 million euros was paid for various allowances (child allowance, parental benefit, childbirth allowance, child care allowance, etc.), which is 14% more than in 2016 and as much as 68% more than in 2014. For most allowances, the number of recipients has remained nearly unchanged. Of the changes which took effect in 2017, the most significant concerned large families. As of 1 July 2017, families with three to six children receive an additional 300 euros per month on top of the regular child allowance. For families with seven or more children, the allowance increased to 400 euros per month. The cost of the additional allowance for large families was 33.8 million euros, which made up 8% of the budget for all family allowances. The largest share, or nearly a half of the family allowances was paid as parental benefits and more than a third as child allowances.

The expenditure on social protection is still on the rise. The total expenditure is calculated by using the European system of integrated social protection statistics developed by Eurostat (ESSPROS; the data are transmitted by the end of June of year N + 2). In Estonia, 3.33 billion euros was spent on social protection in 2015. This was 11% more than in 2014 and the fastest growth since the economic crisis. The expenditure accounted for 16.4% of the GDP – the highest percentage in the past five years. In European Union (EU) comparison, Estonia is among those countries who spend less on social protection. In 2015, the total social protection expenditure accounted for the largest share in the GDP in France (33.9%), Denmark (32.3%) and Finland (31.6%). The share of social protection expenditure in the GDP was the lowest in Turkey, Romania and Latvia – less than 15%. In 2015, Estonian social protection expenditure per capita was 2,530 euros. Of the EU countries, Luxembourg spent the most on social protection (20,100 euros per capita) and Bulgaria the least (1,100 euros per capita).

Social protection includes financial support and services provided by the public and private sectors, which have been designed to help individuals and households to cope with social issues and risks – to find jobs, increase productivity, invest in healthcare and protect the ageing population. Social protection systems help reduce inequality and poverty risks by maintaining at least a basic income for those in need, by appreciating unpaid work and by giving people confidence for the future. Although the aid may be inadequate for many, a situation must be avoided where living on allowances gives people who are able to work an income equal to or exceeding the remuneration for work. Above all, social protection measures are meant to ensure that people remain as self-reliant as possible.

Social protection is mainly provided via social insurance and social assistance. In return for regular contributions, social insurance schemes provide an income for persons in need in the case of social risks (loss of job, illness, birth of a child, incapacity for work, old age, etc.). Social assistance is meant to improve the standard of living of the most vulnerable members of society, and to prevent poverty. Social protection statistics are based on administrative data sources. The institutions providing data to Statistics Estonia include the Ministry of Social Affairs, Estonian National Social Insurance Board, Eesti Töötukassa, Estonian Health Insurance Fund and the Labour Inspectorate.