Second pillar pension payouts lead to shopping sprees

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Ülemiste shopping mall. Source: Siim Lõvi /ERR

A large part of the money people received from second pillar payouts went toward eliminating small debts. But shopping malls were also filled with people last week buying small appliances and electronics.

A more accurate overview of spending will become clear in the near future, but the effects of pension assets decreasing and their effects on society will be seen in the coming decades.

The total amount paid out to people through second pillar pension system withdrawals was €1.3 billion, which showed itself in shopping malls last weekend. The average payout per person was €7,200, which definitely allows people to go shopping and to even get a nice dinner and a weekend at the spa.

Last week, shopping malls saw an increase of 30 percent in their turnover, the figure for electronics stores even reached 40 percent.

Electronics store chain Klick manager Kaire Koik said it was as if Christmas had arrived last Friday. "If we compare it to the same days last year, it doubled and there were stores, where it tripled," Koik noted.

All kinds of products were purchased, even more expensive electronic goods. "The average purchase also had a slight increase. We can see that people bought bigger things," Koik added.

While you can acquire a top-range TV for a thousand euros, a dream vacation can be more expensive. Travel bureaus also saw significantly more activity last week and not compared to last year's coronavirus experience, but even back to times when travel did not have any virus-related obstacles.

"Over the last week, the number of bookings went up some 30 percent. Compared to both last week and the same week in 2019," said TEZ Tour CEO Svetlana Vertjanova.

Although most wanted to travel to Turkey or Greece, interest for more expensive trips was also higher. "We can see that people are tired, tired of this whole situation [coronavirus] that has taken place for two years. We get inquiries about people wanting to go the Maldives, for example," Vertjanova noted.

A trip to the Maldives can cost some €2,000, so a four-member family can expect to pay nearly €8,000, depending on the age of their children.

As the queues to buy new cars are already long, the used car market is doing very well. Pension pillar payouts were also directed at buying cheaper cars with no lease.

"€7,000-8,000 is about the sum. Clients are currently divided into two groups: those, who want to buy out the car right away and those, who use the money for a down payment on a lease," said Nordauto manager Priit Ärmpalu. "If you have that kind of money, perhaps you look at a car that is newer and more expensive, there are certainly cars bought without lease agreements and if the car is more expensive, the lease payments are also bigger. We have received feedback that the money has come from pension funds."

According to the Nordauto manager, cars were actually purchased using pension funds even before the payouts as people bet on the payouts coming in September, so they can pay back the money they borrowed from friends or relatives. That is exactly how the real estate market also boomed.

"People took a loan from their relatives, for example, with the goal of getting to pay it back with the pension money in September. Loans were taken for deposits, even for obligation contracts and booking contracts for new developments. Of course, people are also buying summer houses, they are buying cheaper real estate in southern Estonia," said real estate bureau Uus Maa analyst Risto Vähi.

The pension fund money also made real estate more expensive. "This expectation has already affected pricing. It is one of the components why this price increase has taken place over the last year or so. Fear of inflation, as well, waiting for pension funds was certainly something that affected it," Vähi explained.

The party will soon be over, however, and regular living will return. Bank of Estonia economist Rasmus Kattai said forecasts of pension asset use were spot-on and this will likely correspond to consumer behavior studies.

"Around half of the withdrawn pension funds could go to consumption, that is around half a billion euros. And that is quite a lot of money, if we look at the consumption of Estonian residents. That has been somewhere around €1 billion monthly, so the additional sum is around half of one month's total consumption. Now the question is how fast the money will be taken to stores," Kattai analyzed.

He added that interest for shopping has certainly increased. "But not all people who took out their money are as eager and we will see this money reach the stores for many months. Christmas is also coming," Kattai said.

The economist said there are not too many people who could invest the pension funds effectively, either in stocks or real estate. Those who have taken out their pension funds due to loans will likely have financial troubles soon again. Analyses about the pension fund use can be seen in the future.

"Currently, even if we see additional funds in the economy creating a tide of consumption, it stimulates the economy in the short term but is a passing phenomenon. In a year or few, this will be forgotten, but the actual effects of this reform can be seen in a few decades. To put it figuratively, the decision to withdraw money from the second pillar wrote a tax bill to the people paying taxes in some 20 years," Kattai said.

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Editor: Kristjan Kallaste

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