The Second Pillar

Your income during your retirement could depend greatly on your 2nd pillar pension

  • The 2nd pillar pension is designed to reduce loss of income during your retirement.
  • Regular payments into a pension fund are deducted from your salary, with the state adding its own contribution.
  • The 2nd pillar pension is mandatory for everyone born in or after 1983. If you don’t select a pension fund when you start working, one will be chosen for you at random from among a range of conservative funds.
  • Find the right one for you from our broad selection.
Choose the fund

Important information about the 2nd pillar pension

  1. The purpose of a 2nd pillar pension is to reduce the deficit arising from a reduction in the 1st pillar pension and it may greatly affect your income after retirement.
  2. Investing in the 2nd pillar pension is done via regular payments depending on the amount of your salary.
  3. It pays to find a suitable 2nd pillar pension fund for you.

    • Funds with higher risk are better for younger people, since the saving period is longer.
    • Funds with lower risk are more suitable for older people for maintaining their pension savings before retirement.
  4. Those who invest in Swedbank’s actively managed funds (K4; K3; K2; K1) receive a notification when it is time for them to change fund. When you use the Life Cycle Fund, it is not necessary to change funds since its risk profile becomes more conservative with age. This means that you can stay in one fund for the entire saving period.
  5. Besides performance, always pay attention to fees. The fees of Swedbank’s pension funds are the best in Estonia in terms of actively managed funds (K4; K3; K2; K1).
Recommendation! It serves to keep in mind that the 1st and 2nd pillar pension may not be enough as they usually constitute about 40% of the salary before retirement. A good opportunity to increase your savings is to use the 3rd pension pillar with an income tax rebate.
  • Joining the 2nd pillar pension fund

    Joining the 2nd pillar is mandatory for everyone born after 1 January 1983 on behalf of whom social tax is paid by the employer.

    You should choose a pension fund yourself today, otherwise lots will be drawn to determine your 2nd pillar fund.

    The fund determined by drawing lots is chosen from among conservative funds and may not provide you with the solution that corresponds to your expectations. The earlier you start knowledgeably saving, the higher your pension will be.

    Until 31 October 2010 those born from 1980-1982 could join the mandatory pension fund. If joining the mandatory pension fund is no longer possible, we recommend that you choose the most suitable method of saving for your retirement among 3rd pillar solutions and use other saving opportunities.

  • 2nd pension pillar payments

    In accordance with the Funded Pensions Act, mandatory funded pension payments can be obtained upon reaching the old-age pension age. Note: Old-age pensions under favourable conditions, early retirement pensions and other such pensions do not entitle you to receive mandatory funded pension payments.

    The manner of payment depends on how many national pension rates* equals the value of the units in the pension account. The Estonian Central Register of Securities makes payments (except in the case of an insurance contract) from the 16th-20th of the month determined by the frequency of payments.

    There are three ways of receiving mandatory funded pension payments:

    • Single payment. If the total value of units in the pension account is less than 10 x the national pension rate, the person may receive it in a single payment. It may be possible to enter into a pension contract instead, but the insurance company may refuse to enter into one.
    • Funded pension. If the total value of the units is 10-50 x the national pension rate, the money can be received in regular payments directly from the pension fund. It may be possible to enter into a pension contract instead, but the insurance company may refuse to enter into one.
    • Pension contract. If the total value of the units exceeds 50 x the national pension rate, the person must enter into a pension contract with an insurance company which will then calculate the amount payable to the person until the end of his or her lifetime, using the annuity calculation formula. If the total value of the units exceeds 700 x the national pension rate, there are several possibilities: the pension contract may be entered into for the total value of the units, or the units that exceed 700 x the national pension rate may be left in the pension account and it is possible to take out a funded pension to receive payments on those units, take the exceeding amount out as a single payment or enter into another pension contract.

    Applications for receiving payments (single payment or funded pension) may be submitted at a branch or online at www.pensionikeskus.ee in the web section (as of 1 January 2017).

    You have to contact an insurance company in order to enter into a pension contract.

    Insurance companies

    If you continue working and submit an application to receive payments, the calculation of payments from your gross salary to the mandatory funded pension shall be terminated on 31 December of the year the first redemption of units was made.

    You can obtain further information about your pension assets and options for receiving payments by calling our investment support on 6 131 606.

    *The national pension rate is the amount calculated on the basis of an index approved annually by the government, which is used for calculating pensions for people not entitled to receive the state old-age pension. The national pension rate established for 2017 is €175.94. This rate is effective until 31 March 2018, after which a new national pension rate will be established.

  • Succession of 2nd pillar pension funds

    For the succession of 2nd pillar pension fund units, an application and certificate of succession must be submitted.

    The successor has the right, once within one year of the issuing of the succession certificate, to submit an application regarding all units forming part of an inheritance to redeem or transfer them to the successor’s pension account.

    Income tax is imposed on payments to a current account.

    If the successor has not submitted an application for the redemption or transfer of the units by the specified deadline, the successor may, within 10 years of the opening of the succession, only demand that all units inherited be transferred to the successor’s pension account.

    A successor who has not joined a 2nd pillar pension has the right to request the redemption of units once within 10 years of the opening of the succession.

  • Fees for 2nd pillar pension funds

    Management fee – the fee payable to the management company for the management of the fund. The management of the fund means the management of the assets in the fund and application of the professional knowledge and skills required for this. In the management of assets the management company has the legal obligation to act in the best interests of pension fund unit holders.

    The management fee is deducted from the market value of the assets of the fund on a daily basis and the net asset value of the unit decreases by this amount. The rate of the management fee (the percentage of the market value of the assets of the fund) and the more detailed procedure for their calculation are determined in the fund rules.

    Contribution fee – a fee that the fund rules may provide for (the percentage of the net asset value of the unit) which is paid by the unit holder upon the acquisition of the fund units. The contribution fee is added to the net asset value of the unit (NAV) and the unit is acquired at the higher price as increased by the amount of the contribution fee.

    Exit fee – a fee that the fund rules may provide for (the percentage of the net asset value of the unit) which is paid by the unit holder upon the resale of the fund units to the management company. The exit fee shall be deducted from the net asset value of the unit (NAV) and the unit is sold at the lower price as reduced by the exit fee being deducted.

    In the case of an exchange between pension funds of different fund managers, the exit fee may be withheld at the moment of exchange, depending on the fund rules. Note: No extra fees are applied in the case of exchanging between funds in the same management company.

    If contributions are directed to a new fund, no additional fees are applied.

    More information on fees can be found in the fund prospectuses and rules.

  • Pension contribution temporary changes from 2009-2017

    From 1 June 2009 until 31 December 2010 the state contributions to the 2nd pillar pension funds were suspended. Those who wanted to continue personal contribution payments were able to submit an application to continue with contributions from 2010. In 2013 it was possible to submit an application to increase contribution. The first number shows personal and the second state contribution.

    Schedule Application submitted Application not submitted
    01.06.2009 – 31.12.2009 0% + 0% 0% + 0%
    01.10 – 30.11.2009 Submission of application to continue making contributions
    2010 2% + 0% 0% + 0%
    2011 2% + 2% 1% + 2%
    2012–2013 2% + 4% 2% + 4%
    15.05 – 15.09.2013 Submission of application to increase contributions
    2014 – 2017 3% + 6% (Application to increase contributions not submitted: 2% + 6%) 3% + 6% (Application to increase contributions not submitted: 2% + 4%)
    2018 2% + 4% 2% + 4%
    Note: People born in or before 1954 who submitted an application to continue making contributions to the 2nd pillar pension in 2009 could not submit an application in 2013 to increase contributions because from 2010 the state contributions to their pension fund continued as usual.

Which 2nd pillar pension fund is the best for you?

Life Cycle Fund

K90–99

Actively managed funds

K4, K3, K2 and K1

Fund invests in Estonia and other Baltic States, among others
Monthly overviews of fund investments and results
Fund is actively managed
Fund invests mainly in indexes
Risk profile of the fund changes automatically with time

Choose the fund

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Choose the fund

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