More about the II pillar

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).

• 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.

  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 four 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 or Fixed- term Pension contract. 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.

  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 2019 is €205.21. This rate is effective until 31 March 2020, 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.

• 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%

  Source: www.pensionikeskus.ee

  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.