Coalition: Allowing second pillar leavers to return worth considering

Although coalition politicians believe that individuals who have left the second pension pillar could be allowed to return earlier than planned, they acknowledge that this would also bring certain challenges. For instance, there is the question of whether the state would still have sufficient funds to pay current pensions.
In 2021, 184,137 people announced their intention to withdraw money from the second pension pillar. They were undeterred by a legal condition requiring a ten-year waiting period to rejoin the pillar or by the fact that those who do not contribute 2 percent of their salary to the second pillar also forfeit the state's additional 4 percent contribution.
In 2022, 29,559 applications to leave the second pillar were submitted, followed by 20,426 in 2023 and 18,240 last year — a tenfold decrease compared to the start of the pension reform. Thus, the initial wave of large-scale withdrawals has long since passed.
Should the ten-year rule now be reconsidered, allowing those who initially opted out of the system to rejoin the second pillar? One of the architects of the reform, former Isamaa party leader Helir-Valdor Seeder, offers a firm "no."
"The pension system should be long-term and stable," Seeder emphasized. "Introducing such changes does not create any stability or sense of security."
Seeder pointed out that if the state has to allocate more funds to the second pillar, there will be less money available for the first pillar — which finances current pension payments. Therefore, he believes the state should plan its resources and obligations as far ahead as possible.
Finance minister: The penalty period should be at least halved
Finance Minister Jürgen Ligi, a member of the Reform Party, also believes that the second pension pillar is not a savings account for constantly depositing and withdrawing money. However, he is not as adamant as Seeder. Ligi said he has himself raised the question of whether the so-called penalty period — as he describes it — could be shortened. How much to shorten it, he believes, still requires discussion. "But certainly by half," he suggested.
Ligi's fellow Reform member, Social Protection Minister Signe Riisalo is convinced that the more people save for their pensions, the better. "In the long term, the first pension pillar alone will not guarantee a comfortable standard of living in the future," Riisalo said. "And that definitely means it is reasonable to consider whether to allow quicker reentry into the second pillar."
However, if, for example, 100,000 people were to rejoin the second pillar now, it would create a significant problem for the state. Like Seeder, Riisalo explained that under the current system, part of the social tax paid by these individuals would be redirected to the second pillar. This would leave less money available for paying current pensions. From a social tax perspective, there is already a shortfall.
"Currently, we are in a situation where more than €200 million is being added annually from other state budget resources to supplement social tax receipt," Riisalo said.
Thus, Riisalo believes that allowing people to rejoin the second pension pillar earlier is possible, but without the state contributing its 4 percent to their 2 percent payments.
"People should still have an interest in maintaining their second pillar, as it is individual and inheritable," Riisalo said. However, she acknowledged that joining the third pillar has not gained significant popularity, even though it is also individual, inheritable and offers income tax refunds on contributions.
Riisalo's concern highlights another issue: is the state prepared for a scenario where a large number of those who left the second pension pillar in 2021 might want to rejoin it in 2031? Under current rules, the state would then be obligated to match their contributions.
"It's not very likely that all of these people will rejoin the second pillar, except in the case that it is made mandatory again," the minister said.
Tanel Kiik: Quitting the second pillar should not be made more tempting
Former Minister of Social Affairs Tanel Kiik, who, like Helir-Valdor Seeder, was among the architects of the pension reform, recalled that he had previously proposed allowing individuals to withdraw only the funds they had personally contributed to the second pillar, leaving the state's contributions in the system to await retirement. The government at the time did not support this proposal.
Kiik, who has since moved from the Center Party, the leading party of that government, to the Social Democrats, emphasized that even five years ago, he considered it critical for as many people as possible to leave their funds in the second pillar. According to Kiik, this was also the goal of the ten-year restriction.
"The aim was for people to take retirement planning seriously and for leaving the second pillar not to become an easy decision," Kiik explained.
He also believes that allowing those who left the second pillar to return earlier is worth considering. "The main question is to ensure that this does not make it too easy for people to leave the system again, particularly for those who are still actively saving for their pensions," Kiik said, emphasizing the need to avoid a situation where easing the restriction would lead to a new wave of withdrawals.
While Kiik, Riisalo and Ligi agree that any changes should strengthen the current three-pillar pension system, Seeder takes a different view. He believes that if the pension system is to be changed at all, it should result in retaining only the first pillar and the third, currently voluntary, pillar.
"Not in a way where part of the social tax is taken from today's pensioners via the second pillar and allocated through banks to fund future pensions. That is unfair to current pensioners," Seeder argued.
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Editor: Mirjam Mäekivi, Marcus Turovski