Research: Public ill-informed about pensions and retirement

Pensioners in Tallinn (picture is illustrative).
Pensioners in Tallinn (picture is illustrative). Source: Siim Lõvi/ERR

According to recent market research, awareness among the Estonian public about the impending pension reform is low, with many not knowing key facts surrounding the move to make the so-called second pillar, referring to employee contributions to pension schemes, voluntary, where it had previously been mandatory for most wage earners.

This was particularly the case among young people, with higher awareness recorded among those aged over 55, as well as professionals, according to the survey commissioned by pollsters Turu-uuringute on behalf of Swedbank.
Some of the key findings reported that:

  • Nearly half of respondents were unaware that second pillar contributions can be suspended but the funds accrued so far left in the scheme.
  • A similar number were unaware that withdrawing funds, which the government intends to make possible by early next year, will incur additional income tax.
  • One-third was unaware that raising money in the second pillar cam be continued independently, under the through an investment account. 
  • Almost half were not aware that those who did not previously have the opportunity to join the second pillar. 
  • Almost half were convinced that they could withdraw from the second pillar scheme partly, rather than having to take the whole sum, as is actually the case.
  • Only 20 percent were aware that they could re-join the second pillar ten years after leaving it and not earlier, but 15 percent thought they could re-join at any time.

Respondents said still have retirement plans despite knowledge gaps

Despite this patchy knowledge, two-thirds of respondents said their pension strategy had already been formulated.

Thirty-five percent said they intended to continue to accumulate in the second pension pillar, 20 percent plan to exit the system, 7 percent to continue with an investment account, and 34 percent were undecided due to a lack of information.

Of those who withdraw the money money, 35 percent said they plan to invest in real estate, 33 percent would transfer money to a savings or current account, 23 percent would spend the money on purchases or travel, 14 percent would independently invest in securities and 12 percent would use the money to pay-off a home loan. 

Respondents who were men were reportedly more interested in investing.

43 percent of those who plan an investment plan said they had investment knowledge, even though they had no experience. However, 25 percent said they have little experience, and 18 percent said they had neither knowledge nor experience. Only 12 percent said they had sufficient investment experience.

Of plans for retirement, around half of respondents said that they would continue to work beyond retirement age, a little under a third said they would rely on the second pillar, approximately the same figure said they would make use of savings, and a little under a fifth of respondents said they would rely on their children to provide for them.

Young people are making older people more aware that retirement needs insurance, but that does not automatically mean getting into action.

Kristjan Tamla, Head of Investment at Swedbank noted that prospective retirees need to consider that even with second pillar funds, relying on it plus the state pension would on average provide around 40 percent of current working earnings.

Tamla also claimed that the amount who planned to invest in real estate to live on rental incomes in future, were they to follow through with their plans, would end up with around 60,000 pensioners earning their keep this way, which he said was unrealistic given the size of Estonia's market.

Editor: Andrew Whyte

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