Paying 20% ​​contributions to the pension fund will deduct 109,000 est

According to data from the beginning of March, of the slightly more than 700,000 active pension accumulation accounts, the decision to stop accumulating and withdrawing savings was made by some 109,000 inhabitants of the country.

Until 2021 In the early 1990s, participation in the second pillar of pension accumulation in Estonia was mandatory for adults born in 1983 and later. However, the reform of the pension system abolished the rule and allowed Estonians who so wished to withdraw their second pillar savings or stop paying contributions.

Deductible I PF contributions before reaching retirement age are subject to 20% personal income tax in Estonia.

According to the specialist, both distrust in the pension system and the pandemic may have had the greatest impact on this election.

Part of the retreat is that Estonian citizens worry that inflation will consume their money or that their savings will disappear.

Another part says that they will use the retired old-age loan for large purchases or initial home, while others want to start investing themselves, such as their own business, cryptocurrency or real estate (RE).

It was decided to withdraw the total amount accumulated by another 18,000 est retirees. In addition, around 2,000 Estonians took the opportunity to stop transferring money from their second pillar pension fund, but the money remained in it.

The Estonians had three chances

It can be seen that since the new law in Estonia has also changed the procedure for disposing of accumulated money at retirement age, participants of three-tier pension funds in Estonia have three options.

First: continue to accumulate for retirement in Tier II funds. For those who decide to continue accumulating in pension funds, nothing will change. T. and. they will continue to pay 2% of their pre-tax salary to their pension fund each month and an additional 4% will be transferred from their social security contributions.

Second: Estonian residents will be able to choose to invest the money accumulated in the Tier II fund through an investment account. The holders of these accounts may choose to invest in stocks, real estate funds or other assets themselves or through professional intermediaries. Until the money is withdrawn there, no fees are paid.

And the third: the participant may withdraw the deposit from his account in the pension fund within two years after submitting the application. Withdrawals before retirement age will be subject to a 20% income tax. If the accumulator reaches retirement age at once to take all the loans to the pension fund at once, then the funds will be taxed at 10%.

The OECD does not encourage l

For its part, the Organization for Economic Cooperation and Development (OECD) considers that pre-retirement old-age savings can only be used in the event of a crisis, and access to them may not be granted to all future retirees, but only those in financial distress.

The OECD Pension Systems Review recognizes that the crisis caused by the pandemic has hampered the functioning of public and private pension systems, and urges that a hasty solution be avoided and that the long-term goal of accumulate old-age pensions.

The experience of our colleagues in Estonia in dealing with clients shows that some who withdraw savings fear that they will not be able to do so in the future, although the law stipulates that it will be possible to withdraw savings at any time. The pandemic may also have had an impact on the decision to withdraw the money accumulated in the second stage, says Aist Paliukait, investment management manager for Luminor’s pension product.

According to A. Paliukaits, the fact that 84% of second-tier Estonian participants have decided to continue accumulating for retirement shows that most est understand the benefits of additional accumulation for retirement. In Estonia, 9% of companies do not invest additionally or invest in their pension. By comparison, Lithuania has a population of 19%.

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