Ministry starts campaign to stop people leaving second pillar pension fund

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Keit Pentus-Rosimannus. Source: Priit Mürk/ERR

An advertising campaign has been launched by the Ministry of Finance to encourage people not to leave the second pillar pension fund and to rethink their decision.

People who have applied to leave the pillar during the first quarter of 2021 have until the end of July to change their minds. If a person leaves, it will not be possible to rejoin for 10 years.

"Continuing to save will help maintain quality of life in old age. Simply spending the money already saved will lead to greater financial uncertainty for the person in the future," Minister of Finance Keit Pentus-Rosimannus (Reform) said.

"I encourage all those who are hesitant to take the opportunity to continue to save in order to secure a higher pension in old age as the second pillar offers different options."

Leaving the second pillar also leaves people with a smaller pension in the first pillar as part of the 20 percent tax paid to leave the second pillar comes from there.

This means that a person who has left the second pillar has a lower pension from the first pillar - the state pension - than a person who has never joined the second pillar, the ministry said.

"If a person feels that they can increase their pension money better, they do not have to leave the second pillar, but can have it transferred to a personal pension investment account in the autumn and continue investing themselves," said Siiri Tõniste, head of the Insurance Policy Department of the Ministry of Finance. "With that, a person does not lose 20 percent, which must be paid as income tax when leaving the second pillar."

In retirement, withdrawing money from the second pillar is more advantageous, the Ministry of Finance reiterated. In the case of a lump sum or short-term pension, 10 percent income tax is payable and long-term withdrawals are exempt from income tax 

So far, 152,179 people have applied to leave the second pillar, which is made up of employer/employee contributions and has been mandatory since 2010.

Since the start of the year, there has been a rise in application to join the third pillar, which is consists of voluntary private pension schemes.

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Editor: Helen Wright

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