10.12.2024
The rapid growth in the number of Estonian residents saving in the third pillar and in the volume of funds in recent years reflects the increase in pension awareness. In total, nearly 173,000 third-pillar pension accounts have been opened, in which at least one investment has been made. The total volume of funds saved in the third pillar amounts to nearly EUR 870 million.
While the total volume of III pillar funds increased by 42% in 2023, this year’s result is on track to eclipse that number. The volume of funds invested in the third pillar has already increased by 41% this year, but many III pillar investors will maximise their contributions just before the end of the year.
According to Vahur Vallistu, Chairman of the Management Board of LHV Varahaldus, the growing popularity of the third pillar demonstrates the increasing interest of the Estonian people in their future security. ‘Continuous contributions to the III pillar are one of the smartest ways to increase economic security over a longer period. It is also a good idea to start investing in options that offer a tax-incentive, and the state will refund the income tax to the investor from the third pillar contributions,’ Vallistu said. He stressed that as of 2025, a higher tax incentive would be applied to contributions made to the third pillar due to an increase in income tax. ‘Therefore, it’s worth continuing or starting to save in the III pillar even more, because in the future, for each euro invested in the third pillar, EUR 0.22 will be returned to you with your tax return,’ Vallistu noted.
In Estonia, pensions are low and every euro saved for the future is important to avoid the risk of poverty in old age. Therefore, according to Vallistu, saving in the III pension pillar as a solution offering significant tax gains could become even more popular. The number of new third pillar accounts is growing on average by 8–10 % per year, but the volume of funds is growing much faster. This suggests that those who already have a third pillar have found ways to increase their contributions. ‘A recent LHV survey revealed that every third person in Estonia plans to invest in the III pillar within the next six months. In order to be able to take advantage of the tax benefit this year and receive a refund of income tax on contributions made to the third pillar in a few months’ time, money should be invested in the third pillar before the end of the year,’ Vallistu said. He noted that in addition to one-off larger contributions, one safe and secure way to save for your pension is to make automated standing payments to the third pillar.
In order to receive an income tax refund on contributions made to the III pillar in 2024, payments must be made by 15:59 on 27 December, at the latest.
This summer, 25% of respondents to a survey conducted by Kantar Emor at the request of LHV considered the III pillar to be the most effective way to prevent poverty during retirement. There was a clear distinction in the 18–34 age group, where 71 % of the participants thought so.
The number of unitholders in the LHV Varahaldus third pension pillar is slightly over 35,000, with an equal number of women and men at 50%. The proportion of women and men among permanent savers is also similar, 47% and 53% respectively.
Nearly 60% of LHV’s clients making standing payments to the third pillar are aged 26–45, and the largest contributions are made by people aged 46–50 years. The average standing payment for people saving in the third pillar at LHV is nearly EUR 100 per month.
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