ESTONIA - The government of Estonia is suspending payment of its contributions to the second pillar pension regime for two years.

Individuals pay 2% of their wages into the Estonian mandatory second pillar system under existing rules and the state adds another 4% from the first pillar contribution paid by each employee.

When the system was introduced in 2002 all people born before 1983 had to join, while those over 60 were barred from the system, leaving the remaining group to choose whether they joined.

The current system has over 580,000 participants with a total of around EEK11bn (€703m) assets in the pension funds.

But from June 1 this year the government will completely suspend its contribution to the second pillar until 2011.

The government plans to start paying 2% from June 2011 while citizens will pay 1%, and full contributions from both sides will then be restored from 2012.

However, for those people who opt to continue to make contributions to their second pillar pensions, the state has promised to pay 6% over the next two years "under certain conditions of economic growth", according to the government in a statement.

"For the years when the state contributions to the second pillar are suspended, the future pensioners will receive a somewhat higher first pillar pension," it added.

This measure will help save EEK1.6bn this year and over EEK3bn next year, according to government estimates.