Supplementary funded pension
Starting in 2022, a fixed-term pension from the third-pillar pension funds – i.e., a supplementary funded pension – can be applied for if:
- you are of retirement age
- you have less than 5 years before reaching retirement age
- you joined the third pillar in 2020 at the latest and have turned 55 and at least five years have passed since you joined the third pillar.
The date on which you joined the third pillar is calculated based on the date of purchase of the first unit or date of conclusion of pension agreement if the units were acquired for a sum transferred from the pension agreement.
Regular payments from the pension fund
A funded pension is a fixed-term pension paid from the pension funds. If you have units in more than one pension fund, the units redeemed upon making a disbursement are taken from all of your pension funds.
Disbursements are made to you until the funded pension end date is reached.
Frequency of payments
In the case of a funded pension, you yourself specify whether you would like to receive your pension payments:
- once a month,
- once a quarter or
- once a year.
Period of pension payments
When choosing the term – the period during which you will draw the pension – you can:
- select a period with the recommended duration or
- set your own period yourself.
The period must be in full years – 20, 17 or 10 years, for example. The minimum term is 1 year. The longer the term, the longer the pension is paid out, but the smaller the pension payment each time.
Recommended duration of pension
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The recommended duration of the pension – the period of payments (during which the income tax exemption applies) calculated on the basis of average remaining life expectancy.
The recommended duration of the pension period is calculated on the basis of the average remaining life expectancy for males or females as published by Statistics Estonia, and the age of the unit holder. It is calculated upon conclusion of the contract and rounded to whole years. Statistics Estonia publishes the data for the calendar year before last.
If you choose recommended duration of the pension period, the pension period is calculated on the basis of the average remaining life expectancy for a person of your age.
You can also specify a period longer than the recommended duration.
If you choose the recommended duration or a longer period, your pension will be income tax exempt.
If you wish to definitely receive a pension for the rest of your life, you will have to enter into a lifelong pension agreement with an insurer. With a fixed-term pension, it is likely that the pension will expire before end of life.
Applying for a funded pension
To receive a funded pension, you will have to submit an application to open a funded pension.
To submit the application:
- contact the bank of your choice or
- go to “My pension account” in the Pension Centre
If you acquire new pension fund units after submitting your application, no separate action is required on your part. The new units will be taken into consideration when the amount payable is calculated at the time of your next disbursement.
Example: If you set a pension period of 15 years, the assets in your pension funds will be distributed over 15 years. This gives you the number of units that will be redeemed at the time of each disbursement. After 15 years, there will be no more assets in your third pillar and your funded pension will have ended.
Ending payments
You can end a funded pension if you so desire.
To do so, submit an application to terminate the supplementary funded pension.
After ending the pension, you can agree on a funded pension on new conditions or choose some other disbursement: lifelong or fixed-term pension from an insurer or a onetime disbursement.
Period for receiving disbursements
Disbursement from the third pillar funded pension takes place pursuant to funded pension application:
- on the 16th to 20th day of each month,
- quarterly on the 16th to 20th day or the last month in the quarter,
- or on the 16th to 20th day of the last month in the pension year.
The first disbursement will be made in the calendar month following submission of application if a monthly disbursement preference was noted in the application.
The income rate on disbursements from the funded pension can be 0%, 10% or 20%.