LHV opens Estonia’s first green third pillar pension fund

3. December 2020

LHV is establishing Pension Fund Green Plus, which is the sister fund of the first Estonian second pillar fund that makes green investments. The investment portfolio of the first green third pillar fund will consist of socially responsible, sustainable and environmental investments. The equity risk to be taken with the fund will always remain between 75% and 100%, depending on the fund manager’s vision.

“The second pillar LHV Pension Fund Green has attracted over 3000 clients in a short period of time and demonstrated impressive returns since its launch,” said fund manager Joel Kukemelk. “Green investments are growing strongly. In addition to the idealistic desire to make the world a better place, sustainable investments have been given a boost by the regulative tailwind: the European Union has increased its climate ambitions, China has set itself climate goals for the first time and voters in the US have elected a president whose election promise is a green programme worth two trillion dollars.”

“The third pillar has become a popular savings product among new investors as a result of the pension reform and considering its tax efficiency – the state rebates income tax on the contributions – those who are beginner investors should try the third pillar in addition to the second pillar,” added Kukemelk. “The new fund is not only a tax efficient savings option, but also a green one – LHV Pension Fund Green Plus creates all opportunities for this.”

In addition to the annual income tax rebate, everyone who starts investing in the third pillar before the end of this year will be able to withdraw their money from the fund with an income tax incentive after saving for at least five years and turning 55 years of age. If you start saving in the third pillar in the new year, the age limit up to which the money can be withdrawn will increase considerably – to pension age minus five – so it pays to start investing in the third pillar right now.

The green second and third pillar funds are aimed at everyone who cares about the green mindset and believes that investments must be productive in the long term as well as environmentally friendly and sustainable. At least half of the fund is always invested in funds that proceed from the principle of sustainability or focus on the environment. The fund manager can invest the other half of the fund in single green instruments. In the case of the single investments made on account of LHV’s green funds, at least 20% of the company’s income, profit or balance sheet total must come from one of seven fields: renewable energy and alternative energy; energy efficiency; water infrastructure and technology; reduction of pollution; waste management and recovery; environmental support activities; responsible food industry, agriculture and forestry. No single investments will be made on account of the fund in companies specialising in gambling, weapons, tobacco, alcohol or the coal industry.

The establishment of the green second and third pillar pension funds is an important step in LHV’s broader sustainable banking programme, which will help the financial group reduce its ecological footprint and increase its focus on environmental impact management. The management of LHV’s existing pension funds also increasingly focuses on how to make investments more sustainable – the Responsible Investment Principles of LHV Asset Management has entered into force in December and the most important ESG (environmental, social, governance) issues have been integrated into the voting policy.

LHV has seven second pillar pension funds and three third pillar pension funds. LHV Varahaldus, which manages the pension funds of LHV, is a subsidiary of LHV Group, the largest local financial group and capital provider. The pension funds managed by LHV have approximately 180,000 active clients. The market share of LHV Varahaldus in the Estonian mandatory pension fund market according to volume is 29%.

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