Pension Reform 2021
If you have reached the retirement age, or you have less than 5 years until you reach retirement age, you can receive the funded pension assets as:
- a fixed-term pension from pension funds (funded pension),
- as a fixed-term pension agreement from an insurance company.
In choosing the term or period in which you will receive the pension, you can do the following:
- set the period yourself or
- choose the recommended period.
The term may be in full years, for example 20, 17 or 10 years. The longer the term, the longer you will be paid the pension. However, the longer the period, the smaller the pension amount will be each time. The minimum term is 1 year.
If you opt for the recommended duration period, the period will be calculated based on your age and on the average remaining life expectancy.
A longer term than the recommended duration may also be chosen.
If you choose the recommended duration or longer period as the pension period, your pension will be income-tax-exempt from 1 January 2021.
If you have a definite desire to receive a pension until the end of your life, you should enter into a annuity agreement with an insurance company. In the case of a fixed-term pension, it is likely that the payment of the pension will end earlier.
Recommended duration of pension
- The recommended duration of a pension is the income-tax-exempt disbursement period calculated on the basis of average remaining life expectancy
The term of the recommended duration of a pension period is calculated on the basis of average remaining male/female life expectancy published by Statistics Estonia and the age of the unitholder.
This is calculated upon entering into the agreement and rounded to the nearest year.
The data published by Statistics Estonia are for the calendar year two years before the current date.
Termination of payment duty
Contributions to the second pillar of the pension cease according to the time of submission of the application as follows:
Submission of application
- From 1 December to 31 March – the end of the commitment on 31 August;
- From 1 April to 31 July – the end of the commitment on 31 December;
- From 1 August to 30 November – end of commitment 30 April.
Regular payments from pension fund - funded pension
A funded pension is a fixed-term pension paid out from pension funds. If you have units in several pension funds, units from all pension funds are redeemed for disbursement. The pension is paid out until the end of the funded pension term.
To receive the funded pension, an application for opening a funded pension must be submitted.
To submit the application:
- contact the bank of your choice or
- go to the “My pension account” self-service section of the Pension Centre website.
If you chose a term of 15 years, the assets accumulated in your funds will be spread out over 15 years. The number of units to be bought back at each disbursement is found in this way. After 15 years, there will no more assets in your second pillar and the funded pension will have ended.
Frequency of payments and cancellation
In the case of a funded pension, you can choose whether you would like to receive your pension:
- once a month,
- once a quarter or
- once a year.
You may also cancel the funded pension if desired. After cancelling the pension, you may agree on the pension with new conditions or select some other disbursement: the lifetime or fixed-term pension from an insurance company or a one-time disbursement.
Time for receiving disbursements
Disbursements from the second pillar of the pension are pursuant to the funded pension application.
- every month on dates 16-20,
- quarterly on dates 16-20 of the last month of the quarter,
- dates 16-20 of the last month of the pension year,
The first disbursement is made in the calendar month following submission of the application if after the desire to receive a monthly disbursement was specified in the application.
Fixed-term pension agreement with an insurance company
To receive a fixed-term pension from an insurance company, an insurance agreement must be concluded. After entering into a fixed-term pension agreement, the insurance premium must be paid from the assets accumulated in the second pillar. The insurance company will pay the pension until the end of the term.
These are the following options for paying the insurance premium:
- use all of the assets accumulated in the second pillar or
- enter into a fixed-term pension agreement for a smaller amount.
The rest of the second-pillar assets may also be withdrawn in another manner – as a funded pension from pension funds or as a one-time disbursement.
If you have used only some of your assets accumulated in the second pillar for entering into a fixed-term pension agreement, you can do the following with the assets still in the pension fund and for new assets accruing in the second pillar:
- enter into a new pension agreement,
- select a funded pension or
- withdraw the remainder of the funds as a one-time payment.
If desired you may also transfer it to the previously selected insurance company and thereby increase the size of the disbursement.
For more details on the conditions of the fixed-term pension agreement and to enter into an agreement, contact the insurance company.
The following insurance companies enter into fixed-term pension agreements:
Previously concluded funded pension agreement
The terms of a previously concluded funded pension remain valid. Disbursements will continue as before.
If a payout limit has been used in previously concluded agreements and the agreements have been concluded with a minimum duration, these conditions will remain in force.
If you have a previous agreement for a shorter period than the new recommended duration (agreements with a duration of 10 years are very common), then starting on 1 January 2021 10% income tax will be withheld from your payments.
However, you can terminate a previously concluded funded pension agreement and start a new agreement with new conditions.
- Read more from here: For pension agreement clients