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The government confirmed the principles of the reform of the second pension pillar

22. August 2019 - 17:50
Photo: Anete Palmik
Photo: Anete Palmik

Stenbock House, 22 August 2019 – At today’s cabinet meeting, the Minister of Finance’s approval to reform the second pension pillar was approved, making it optional to join or leave the second pension pillar.

“The coalition has reached an agreement regarding the principles of the second pension pillar reform,” Prime Minister Jüri Ratas said after today’s cabinet meeting. He added that the biggest change brought about by the reform will be the increased freedom of choice when making pension-related decisions. “People will be able to continue to accumulate money in the second pension pillar as they have been doing so far. They can also stop making payments, but keep the accumulated money in the pension fund. The third option is to stop making payments and withdraw the accumulated money,” the prime minister explained.

“By reforming the second pension pillar, we will significantly increase the possibilities for flexibility in preparing for retirement. This means we can start to save for retirement right when it is the most convenient for us, as well as leave the pillar and use the funds collected,” said Minister of Finance Martin Helme. “A person who has decided to withdraw their money from the second pillar will be allowed to return to it once. While a young person who has just started working is not yet thinking of retirement and would rather spend their money somewhere else, they might think differently in 10 years.”

Tanel Kiik, Minister of Social Affairs, added that the coalition had an agreement that everyone would still have the opportunity to keep using the second pension pillar to save money for retirement. “More freedom of choice means that if we want to, we can take more responsibility for how our retirement money is invested. In any case, it is important to think about retirement already in the early stages of our working life, because unfortunately, the retirement pension provided by the state is not enough to provide an income comparable to the average wage. We all must make our choices carefully and consider the options that are the most secure and reasonable for our retirement plans in the long run,” said Kiik.

As the reform enters into force, joining or leaving the second pension pillar will be optional for everyone. Both can be done by submitting an application to the Pension Centre or a bank. It will be possible to stop making payments to the second pension pillar and leave the funds in the pillar, where they will continue to be invested. It will also be possible to stop making payments and withdraw the money from the second pillar. Those who would like to invest their retirement money themselves will be able to transfer the money from their second pension pillar to a personal investment account.

The money contributed to the second pillar so far will be disbursed all at once for amounts of up to €10,000*; for larger amounts, disbursements will be made in three parts. The disbursements will be subject to income tax. The disbursements will be made within one year, on the dates that the shares of the pension fund are exchanged.

People who have decided to leave their second pension pillar will be able to return to it after 10 years. Should they decide to return to their second pension pillar, they can withdraw the accumulated money again after 10 years and leave the pillar again. After leaving for the second time, they will receive pension payments only from the first pension pillar, or the first and third, provided they have joined the third pillar. They will no longer be able to join the second pension pillar.

People who were born in 1982 or earlier and will only now voluntarily join the second pension pillar will be able to withdraw the money from it after 10 years have passed from the date that they joined.

If a person has money in the second pension pillar, once they reach retirement age, they will be able to decide if they would like to receive the money as a lifetime pension or a fixed-term pension, or receive the funds all at once.

The reform will start in 2020, the deadline for submitting applications to stop making payments, to start making payments next year, or to withdraw the funds will be 31 August. From 2021, conventional deadlines for submitting applications will apply: 31 March, 31 July, and 30 November.

* The final maximum limit will be decided at the cabinet meeting on 12 September, after the Ministry of Finance has carried out a further analysis.


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