Pro Patria proposes updates to second pension pillar

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Pro Patria chairman Helir-Valdor Seeder.
Pro Patria chairman Helir-Valdor Seeder. Source: (Siim Lõvi/ERR)

The Pro Patria Party has introduced a plan to reform Estonia's second pension pillar according to which the pillar would not be abolished, but rather people would be given the right to transfer money that had accrued in their pension fund to their own investment account and then invest it according to their own wishes.

"Pro Patria is proposing making a fundamentally important change to the funded pension system — to give people the right to decide over the use of their second pension pillar," Pro Patria chairman Helir-Valdor Seeder said.

According to Seeder, the party's proposal is based on the fact that the second pension pillar has not fulfilled the objectives set at the time of its introduction. The systematic reason behind the problem is that the state has stripped people almost entirely of their right to choose and forced them to invest their pension money on a poorly functioning competitive pension fund market. Fund fees have also been high, and real rates of return have been negative over the past decade.

"We believe that by increasing discretion and decreasing state compulsion, the majority of people will make decisions regarding their assets that increase wealth and their preparedness for old age better than state-regulated compulsory pension funds, the returns on which are among the lowest in the world," he explained.

"If people become masters of their own funded pensions, this will strengthen competition on Estonia's investment market and signal that people have to think about the future themselves as well," he added.

According to Seeder, Pro Patria's proposal is based on the fact that all of the assets in second pillar pension funds belong to those paying into them. According to the party's proposal, one could continue contributing to their pension as they currently do, but the right to transfer money already contributed to one's pension fund into an investment account and invest according to one's own wishes would be introduced as well. Opportunities for using an investment account would be expanded to allow for investments into a greater number of asset classes. Those interested should be granted access via their investment accounts to as many Estonian and international stocks, investment funds and other investment opportunities as possible. Everyone would also be given the right to withdraw money from their investment account.

The pension reform plan to receive approval by consensus in the leadership of the Reform Party is somewhat different from Seeder's previously described plans. Seeder has previously told ERR that second pillar pensions should initially be made voluntary and then later abolished altogether. His idea received sharp criticism from political opponents, including from Reform Party chairwoman Kaja Kallas, who said that abolishing the second pillar was a red line for her party.

Seeder: Money freed up from second pillar could pay off SMS loans

ERR radio news reporter Indrek Kiisler asked Seeder on Tuesday whether it wasn't a concern that people might just start using money from their second pillar pension fund to pay for everyday necessities and end up emptying out their second pillar accounts.

"No," the Pro Patria chairman replied. "This is a myth that is propagated by convinced supporters of the second pillar, finance fundamentalists who have driven Estonian society as well as future and current pensioners crazy."

Those few individuals who waste money and spend it recklessly are already doing so today and will continue to do so in the future as well, Seeder said, adding that if people are already taking out quick loans or loaning themselves to death, then they will continue behaving uneconomically after second pension pillars are freed up as well.

The majority of people, he believed, wouldn't start behaving irresponsibly. "The majority of people are not foolish and irresponsible," he added.

"If people have accrued a bigger sum, then as a rule they invest, which is a very reasonable thing to do," Seeder said.

Asked how likely he deemed it that people who have taken out quick loans, or SMS loans, will begin using money freed up from the second pillar to pay off their loans and pay for other everyday eexpenses, Seeder responded that he found there would be nothing wrong with that.

"If people have taken out SMS loans and are up to their ears in debt, then this problem needs to be solved," Seeder said. "If they have accrued some sum of money in their pension fund that they cannot use and at the same time are forced to take out a loan, then this is a kind of forced situation in which we are forcing someone to behave uneconomically. And here I can say, hypothetically, that if they had had the opportunity to use the money that they have been forced to accrue in a [pension] pillar and cannot use, maybe they wouldn't currently have any SMS loans taken out."


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Editor: Aili Vahtla

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