Around 160,000 people leave second pension pillar

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Money (photo is illustrative). Source: Emilian Robert Vicol / Pixabay

Roughly 160,000 people have decided to pull out of the so-called second pension pillar system. Some 4,000 asset holders have withdrawn their application, data from the pensions center reveals.

Data from the Estonian Funded Pension Registry reveals that 160,413 people had decided to leave the mandatory funded pension scheme by July 31. The figure does not reflect those who have withdrawn their applications. The Ministry of Finance puts the latter at 4,000.

Saturday marked the last chance to withdrawn applications to leave the second pillar. Those who opt to leave the scheme can rejoin after ten years, the ministry's press service said. Most Estonians decided to stay in the second pillar, the ministry added.

Next to those who chose to leave the scheme, 2,948 people decided to freeze their second pillar payments.

Siiri Tõniste, head of the ministry's insurance policy department, said that people can have different reasons for changing their mind. "There are those who did not have a clear overview of their options in spring and filed their application just in case. For example, people who didn't know they can leave the pillar at any time and that this was not a one-off opportunity," Tõniste said in a press release.

People who are close to retirement could have changed their mind because withdrawing pension assets is subject to a lower income tax rate after one retires, which is why it is worth the wait, the ministry said.

Others might have lost the reason to withdraw assets early. "For example, after being able to restore their income and deciding to continue saving. I'm sure there are those who have realized that long-term saving and investment have clear advantages," Tõniste said. "Estonia is going through an investment boom that has also benefited the second and third pension pillars as very simple and effective ways of saving up and investing." The second pension pillar is also inheritable.

The ministry urges people to consider that withdrawing second pillar assets sees the person give away 20 percent in income tax. Using second pillar assets after retiring is free of tax or subject to a 10 percent rate if the money is withdrawn in bulk.

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Editor: Marcus Turovski

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