More about the II pillar

A great II pillar pension fund may result in significant income in the future.

  • The purpose of the II pillar is to compensate for the reduction of the I pillar (state old-age pension).
  • A total of 2% of your gross wages will be transferred to the pension fund and the state adds a further 4% from the part of social tax to insure your personal future.
  • Joining the II pillar is mandatory for anyone born from 1983.
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Important to know about the II pillar pension:

  1. The employee’s wages are subject to social tax that is paid at a rate of 33%, of which 13% is directed to health insurance and 20% to the state pension (I pillar), which is immediately paid to the current pensioners. Depending on the number of employees and pensioners, the amount of the payable state pension will change.
  2. When you join the II pension pillar, the state pension will amount to 16% and 4% to insure your personal future, plus 2% of your wages. This part is not paid to the current pensioners, but only to you when you reach retirement age. Therefore, the purpose of the II pillar pension is to compensate for the future deficit resulting from the reduction of the I pillar pension. As time goes on, the II pillar will have a positive impact on your retirement income.
  3. The pension is automatically added to the II pillar in the form of monthly payments and based on your remuneration.
  4. Find a suitable fund to save in the II pillar.

    • Higher risk funds (K1990–1999, K100, K60, K30) with more equity investments. There may be greater fluctuations with regard to equity investments, making them ideal for young savers, whose saving period is long and temporary fluctuations do not affect the saver. This way you can earn higher returns.
    • Lower risk funds (K10) with more bonds. Bond investments are generally more stable and have lower risk. These are more suitable for an elderly saver to preserve the pension assets accumulated before retirement.
  5. 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.
  6. 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.

Which fund of the II pillar fund is the most suitable for you?

Life Cycle Fund

K1990–1999

Actively managed funds

K100, K60, K30 and K10

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

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