Increase pension
What are the advantages?
Pensions are low in Estonia. We have an average pension of nearly 40% of the average salary, but the EU average is much higher1.
The most you can do is to increase your involvement in saving for retirement. To do this, take advantage of the investment options with tax incentive created by the state, which are the second and third pillars.
- The money in the second and third pillars accumulates at the rate at which you contribute. As your salary increases, so do your second pillar contributions. You can now also decide what percentage of your salary will be deposited there. The higher the percentage, the faster your savings will grow.
- Contributions to the second pillar are automatic. Since you do not have to make or declare contributions yourself, it is a very convenient way to increase your savings. Automatic contributions mean that there is no temptation to spend the money in other ways, so you can invest regularly and consistently without worrying.
- Contributions to the second and third pillars are tax-free. With all other investment options, you will have to pay 22% income tax to the state and only then will you be able to move forward. The state income tax incentive gives you a good leverage to grow your wealth.
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Second pillar payments |
Third pillar payments up to 15% of salary or EUR 6000 |
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Taxation |
Income tax incentive. |
Income tax incentive. |
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Selection of funds |
26 funds. Option to invest in funds with various risk levels. |
17 funds. Option to invest in funds with various risk levels. |
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Easy contributions |
2% by default. To increase it to 4% or 6%, you need to submit an application that takes a few minutes. The change will take effect in the next calendar year, i.e. the payments increase (or decrease) on 1 January of the calendar year following the year in which the application is submitted. |
You need to open the third pillar, submit a fund selection application and make manual payments or set up a standing order. It will only take a few minutes. Payments are deposited in the pillar within 1-2 working days. |
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Payout conditions |
Before you reach retirement age, you can only withdraw the money in full. Withdrawal will suspend the possibility to contribute to the second pillar for 10 years. Payouts are made with a 5-month delay. |
You can withdraw all or part of your money. This does not change the contribution process or the future tax incentive. Payouts are made within 4 working days. |
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Inheritable |
Yes |
Yes |
1 OECD https://data.oecd.org/pension/net-pension-replacement-rates.htm