Half of second pillar pension fund holders have less than €4,000

Pensioners in Tallinn (picture is illustrative).
Pensioners in Tallinn (picture is illustrative). Source: Siim Lõvi/ERR

Fifty per cent of the over half a million people in Estonia who have so-called second pillar pension funds hold no more than €4,000, ERR's Estonian online news reports, with almost a quarter holding less than €1,000. Nearly a third of second pillar pension fund holders have accrued between €4,000 and €10,000, however.

The second pillar refers to mandatory employee pension contributions (employer contributions represent the first pillar, with the third pillar being voluntary, privately-arranged contributions). Abolishing it has been a central plank of Isamaa's election manifesto.

Isamaa did not manage to get this policy in full in the coalition agreement signed on Monday with Centre and the Conservative People's Party of Estonia (EKRE), but has received some concessions such as the option to opt-out under certain conditions, and inspection of pension management fees, it is reported.

The breakdown, according to data from the finance ministry, concerning close to 548,000 who hold second pillar pension funds, is as follows:

  • Up to €1,000 – 23%
  • €1,001-€4,000 – 27%
  • €4,001-€10,000 – 31%
  • €10,001-€20,000 – 14%
  • Over €20,000 – 5% (27,382 people).

An age breakdown of the data was not reported.

Under current law and since the second pillar is mandatory, there is no provision for early payment of pensions, it is reported, nor whether there will be in future, with or without a penalty.

''The appropriate regulation has yet to be created," Siiri Suutre of the finance ministry's communications deparment told ERR on Monday.

It is also not clear whether a person wishing to withdraw from the fund and put the money into an investment account will be required to pay the income tax on the units. The current regulation does not foresee a tax claim on the exchange of pension funds, it is reported, but there is no regulation to transfer money from the fund to an investment account.

The Centre/EKRE/Isamaa coalition agreement apparently states simply that a person withdrawing from a pension account will have to pay income tax, and that disbursements will be made on the basis of an application within two years, meaning that the pension funds have the right to defer from disbursements to avoid a situation where all those wishing to receive the funds do not do so simultaneously, ERR's online news reports.

Under the current system, employees pay 2% of the gross salary to the pension fund. The state adds 4% from the 33% social tax calculated on the salary of the employee. The scheme is mandatory for those born in or after 1983. Those born between 1942 and 1982 had the option to opt out when the scheme was introduced; the deadline for doing so was 31 October 2010.

Editor: Andrew Whyte

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