SEB Warns of Pension Shortfall, Shops Voluntary Retirement Funds
A leading bank has estimated that the current working-age generation will have to save 30 million more euros in their employer-matched and investment retirement funds if they expect to a draw a pension that will meet their needs in 2040.
Over the last 10 years close to a billion of euros has accrued in the second and third-pillar funds - the first pillar being the basic state pension - and if the current rate is maintained, total pension assets will reach 12 billion euros.
That will not be enough to pay a decent pension for everyone, warns SEB.
Chairman of the board of SEB Life and Pension Insurance Indrek Holst said the European Code of Social Security says the minimum pension should be 40 percent of a person's last pre-retirement income. "The ratio of the average Estonian pension to net wages has been close to that, but compared to others it is one of the lowest in the EU. The average in the EU is close to 65 percent, which should be Estonia's goal," said Holst.
A study conducted by SEB and TNS Emor found that 67 percent put their trust in the state pension, 47 percent in the second pillar and 14 percent in the third pillar. Twenty percent of the respondents said their pension could be 80 percent of their pre-pension wage and 40 percent would settle for a 60 percent level.
Holst pointed out that people's expectations were high, but the current 1.5 employees supporting each pensioner today will dwindle to just 1 in 2040. People will need to save around 66,000 euros to spend 20 years or more in their retirement.
Holst said one way of raising the total shortfall of 18 billion euros would be to get the third pillar working. The total invested into the third pillar is 255 million euros - 1,700 euros per capita - a fraction of the total in the second pillar.
However, the third pillar is an investment subject to the vagaries of the market, albeit a safer one than stocks or bonds. The only thing guaranteed by the state regarding the third pillar is the income tax break on up to 15 percent of income for amounts invested in it.
Kristopher Rikken