01.12.2024
More than 74 000 people increased their contribution to the second pension pillar this year, which is a very good result according to Vahur Vallistu, Head of LHV Varahaldus.
The second pillar contribution could be increased from the current two per cent to four or six per cent until midnight on 30 November. As of this morning, a total of 74 008 people have done so according to the Pension Centre. Of these, 27 863 people increased their contribution to four per cent and 46 145 to six per cent. ‘The number of people who decided in favour of six per cent was very encouraging and a pleasant surprise. Saving in pension pillars is one of the easiest and most effective methods of long-term saving, and we are glad to see that already in the first year so many have used this opportunity,’ said Vahur Vallistu, Chairman of the Management Board at LHV Varahaldus. The selected contribution rate will be applied starting with the New Year.
In Vallistu’s opinion, the great interest in increasing the second pillar contributions shows that the people of Estonia are thinking more and more seriously about securing their future. Vallistu is convinced that ‘continuous, tax-efficient, and automated contributions to the second pillar are one of the most effective ways to increase the sense of economic security’. He noted that this is one of the most positive developments in recent years in the local pension system and hopefully the great interest of people will continue to encourage the state to adopt changes that favour saving.
According to surveys, in the future, the average state pension in Estonia will reach just a third of the average salary, which means a sharp deterioration in the standard of living. Pressure on the Estonian pension system will only increase over time, as the number of working-age people will decrease and the number of pensioners will increase as the population ages. As a result, saving for yourself is becoming more and more important. ‘The most that anyone can do to increase their future-security is by saving in both the second and third pillars. Both pillars offer an important tax advantage to investors and are therefore particularly smart ways to grow money over a long period of time,’ Vallistu said. The second pillar contribution is calculated on a person’s salary before the payment of income tax, and income tax can be refunded on the third pillar payments.
A smart way to save for retirement, like any investment, is to start young. This way, more savings will accumulate and compound interest will do its job more efficiently. In other words, money has more time to work for a person. It is also worth starting later, for example, if a 45-year-old person earning an average Estonian gross salary, i.e., EUR 2000, is just starting to invest in the second pillar and directs 6% of their gross salary there, they will be able to accumulate EUR 66,000 by retirement age. Adding to this the average nominal annual return of the second pillar funds in Estonia since 2002 (3.9%), the value of the accumulated assets will increase to nearly EUR 95,000.
Applications for increasing second pillar contributions can be made in the future in your home bank or at www.pensionikeskus.ee, but the new contribution rate will now apply from 2026.
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