Four years have passed since the reform allowing people to leave Estonia's mandatory funded pension scheme and withdraw savings, and during that time, the number of people who have left the second pension pillar has grown to approximately 250,000.

The coalition agreement is expected to be approved by party councils on Saturday and, among other topics, has also included discussions about the possibility of another pension system reform.

According to Swedbank, the second pillar should be made mandatory again. The bank's head of investment funds, Age Petter, explained that the profile of those withdrawing money from the second pension pillar has changed significantly over time.

"The share of young people under the age of 25 is increasing — in the latest round, they already accounted for 15 percent of all those leaving the system. Money that could grow and provide future financial security instead goes into consumption or simply sits idle in an account," she said.

Petter noted that analyses by the Bank of Estonia (Eesti Pank) also show that voluntary saving is insufficient to ensure financial security in retirement. The money withdrawn from the second pillar is not being reinvested, and ultimately, the financial situation of the segment of the population already in the weakest position may worsen even further.

"One of the main arguments for the pension reform was to increase individual freedom. It was believed that if people were given the ability to manage their own money, they would be able to make better decisions. However, the data shows that independent investing has remained rare, and a significant portion of pension funds is used for consumption or simply sits in accounts, losing value due to inflation," Petter said.

She pointed out, for example, that nearly 23 percent of the amount paid out in January still remains in bank accounts. For that reason, she believes people who have exited the second pillar should be allowed to rejoin it quickly and serious consideration should be given to whether — and under what conditions — pension funds should be accessible before retirement at all.

Swedbank's head of investment funds added that while there will always be those who know how to invest the money they've withdrawn or use it to pay off high-interest loans, the pension system cannot be built on the hope that everyone has the ability and motivation to think long term at all times.

Banks find ten-year waiting period too long

According to Luminor, the waiting period for rejoining the second pension pillar should be shortened.

Vahur Madisson, Luminor's pension fund manager, pointed out that under current rules, those who have left the second pillar can only rejoin after ten years. This lengthy waiting period was established to ensure that individuals seriously considered their decision before opting out.

"Now that it's been nearly five years since the reform, it would make sense to take stock and assess whether such a long pause is justified," Madisson said.

He believes that the number of people willing to rejoin the second pillar could be significant. Among the nearly quarter of a million who exited, Madisson estimates that at least 10 percent might be ready to start saving again. To better understand the attitudes and opinions of former participants regarding a shorter rejoining period, a survey should be conducted, he suggested.

Madisson noted that individuals who initially used their second pillar savings to resolve pressing financial issues — such as paying off high-interest loans or making a down payment on a mortgage — may now be ready to resume long-term saving. Additionally, increased awareness may lead some to regret their earlier decisions.

"It may be that immediate financial needs, lack of experience or an unsuitable fund led to the decision to exit. By offering an earlier rejoining opportunity, people would have the chance to make a more informed choice and consult with specialists if needed," the Luminor fund manager added.

He also emphasized that recent changes to the pension system and funds support rejoining. Pension funds have become more flexible in recent years, management fees have decreased and passive funds — very popular among savers — have entered the market. Additionally, there is now the option to increase second pillar contributions to 4 or even 6 percent, which makes saving more attractive.

Swedbank also supports shortening the rejoining period. Age Petter noted that the current 10-year wait to rejoin often means that, from an investment standpoint, future pensions will be significantly smaller.

"Time is an investor's greatest ally. We shouldn't take that opportunity away from young people," Petter said.

Government has no concrete plan

Minister of Social Affairs Karmen Joller (Reform) said Wednesday on Vikerraadio's "Uudis+" program that she cannot yet comment on the coalition's specific plans regarding the pension system, as those discussions are still ahead.

"We've decided that we will definitely deliberate among ourselves, consult with experts and create a strategy that will help ensure people can feel secure in their retirement in the future," Joller said.

Asked whether this means the coalition agreement will mostly include verbs like "analyze," "examine" and "consider" rather than outlining concrete actions, the minister responded that the agreement aims to be as specific as possible and to avoid vague promises of analysis.

"For example, when it comes to pensions, we've included the creation of a strategy. This isn't just about analysis — if we truly succeed in creating a strategy, then we expect the government to act on it," she said.

Joller noted that the length of the waiting period for rejoining the second pillar was also discussed during coalition negotiations, but emphasized that a thorough financial analysis is necessary because it involves a cost to the state.

"When someone reenters the system, the state resumes its contributions as well. That's part of the larger strategy. The goal is to ensure we have a functioning pension system in the future," Joller said.

She also urged individuals not to rely solely on the government to make decisions on their behalf, pointing out that everyone can already start saving and investing — such as by contributing to the third pension pillar.

"Even setting aside €20 or €30 per month can have a big impact down the line. I encourage people to review their situation — even if it's just €5 a month, putting aside even a little is very important," Joller added. "From our side, we certainly want to reassess what the state can do to support people."

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