In 2024, second-pillar pension funds earned more income than ever before. The return for third-pillar funds was 20.5 percent, and 16.5 percent for second-pillar funds.

Tõnu Lillelaid, adviser at the financial services policy department of the Ministry of Finance, told ERR that for the second pillar, said this was an increase of almost €0.9 billion.

In total, second-pillar investment income at the end of last year was €2.6 billion.

2023 was also a good year with 12 percent in the second pillar, far above the historical average of 4.5 percent, Lillelaid said.

The same trend can be seen in neighboring countries, where, for example, the best-performing funds in Finland outperformed those in Sweden and Denmark.

Since then, the share of securities carrying equity risk in pension funds has nearly doubled, said Lillelaid.

"Last year, nearly 80 percent of assets in the second pillar were in equities, and 85 percent in the third pillar. This means that in recent years, pension fund returns have depended more on how the stock markets are performing. And in the past couple of years, the stock markets have done quite well," he said. "That is why pension fund returns have also been good. Estonian pension funds primarily invest outside Estonia, mainly in Western Europe and the USA."

However, the start of this year has been slower.

"Pension fund returns have fallen by 7 percent. This means that almost half of last year's absolute return may be gone," Lillelaid said.

"But on the other hand, considering that pension fund investments are very long-term, savers should not worry about short-term declines. If we also consider that such larger declines have occurred quite a few times, during the COVID crisis and in 2008, for example, yet stock markets have still grown by an average of nearly 10 percent annually," he noted.

Exactly what this year's return will be is currently difficult to predict, the advisor said. But, ultimately, one year is not that important, as pension funds should be evaluated based on long-term returns.

The most profitable investments are still foreign assets.

Lillelaid acknowledged that this can be seen in two ways. On one hand, it benefits the Estonian economy when domestic pension funds invest in Estonia. On the other hand, from the pension saver's perspective, it is good when investments are diversified.

"Diversification should not be limited to just one specific country, such as the USA, but spread worldwide so that if a particular region performs slightly worse at some point, the remaining investments can help balance it out," the expert said.

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