This a sample calculation, where the forecast return is based on the internationally used long-term historical annualized return on equity (7%); however, however this does not imply that similar returns can be achieved in the case of the III pillar. For example, the annualized return of the Swedbank pension fund V100, which invests 100% into equity, since the creation of the fund is 4,9% (30st of April 2020). Past return does not guarantee similar return in the future. The basis for the income tax refund is the income tax rate of 20%, which is valid in 2020, and the income tax refund only applies with regard to those contribution that you have made yourself, and which amount up to 15% of your gross income, but do not exceed 6,000 euros.

Why contribute to the 3rd pillar?

1. Tax incentive

   The 3rd pillar is the only option for long-term saving that the state supports with a tax rebate. This means you may get the income tax back on contributions to the 3rd pillar. Income tax will be refunded from third pillar pension contributions that are up to 15% of your gross income but not more than 6,000 euros per calendar year. Calculate your contribution per calendar year to maximise your tax refund.

2. You are saving for your future

   Third pillar is your personal asset and if necessary you can withdraw it before retirement. When withdrawing the assets you need to consider current tax system and that the valid rate of income tax will be deducted from the payments. Read more

   With a more favourable income tax rate of 10% or even 0%, you can use the money as you approach retirement age.

   • If you began saving before 28 December 2020.
     You can use the money from the age of 55 with a more favourable income tax rate, if you have accumulated pension in the III pillar for at least 5 years.
   • If you start saving on 1 December 2021 or later.
     You may withdraw the money at a more favourable income tax rate 5 years before reaching retirement age, if you have accumulated pension for at least 5 years.

   The more favourable rate also applies if the collector is incapable of working. Disbursements which are taxed with a more favourable 10% or 0% income tax rate are not included in your annual income. Note that in other cases III pillar disbursements are part of your annual income and may affect your tax-free income rate.

3. Bigger pension

   On average, people in Estonia enjoy a retirement of 20 years. By saving you can influence the size of your income in the future. It’s recommended that you also put aside 10-15% of your income on a regular basis. According to various studies, the pension you receive during your retirement should be 65-70% of your existing income if you want to continue enjoying your current standard of living. It’s been estimated that the first two pillars make up around 40% of the income you’ll receive during your retirement. We recommend you to start saving as early as possible.