The II pillar is one of the most rewarding long-term investments with tax incentive, and it is when you start saving for retirement at a young age that its full potential is revealed. Besides, the amount collected is heritable and you can withdraw it at your convenience. However, it would be wise to do this at retirement age, otherwise you will have to pay a 20% income tax.
Unique 2 = 6
The state contributes significantly more than you do: for every 2% you add, the state adds 4% from social tax, making a total of 6%. Do the math any way you want, this is certainly more than if you were saving up alone.
Rate of return of the pension funds
Simply keeping money in your account means you miss out on potential returns and the value of your money even decreases due to inflation. Over the past 20 years, the average rate of return on pension funds has outpaced inflation.
Time is the best friend of a saver in the II pillar: a small amount each month will add up to a large sum decades later. Over a period of 10 years, at the current average salary, EUR 10,000 is accrued, to which productivity and compound interest are added.
Joining the II pillar is free and only takes a few minutes. It is just as easy to switch funds later.Bring your II pillar to us
Why save at LHV?
Best rate of return
Our investment policy is to achieve the highest possible long-term rate of return. Over the past 20 years, LHV pension funds have performed the best in Estonia.¹
The assets of LHV pension clients were better protected during the last major economic crisis. We will do our utmost to ensure that future economic shocks also have as little of an impact on savings as possible.
We were the first to launch an environmentally friendly fund with the aim of making the economy more sustainable. With your choice, you contribute to a greener future.
Support of Estonia
Out of the Estonian pension funds on the market, LHV’s funds are the most active in making investments in Estonia. We have our own large and capable local investment team.
How to choose a pension fund?
Two important issues need to be taken into account when selecting the II pillar pension fund: how long you have left until retirement and how much risk you want to take. As a rule, the more a fund invests in stock markets, the higher the risk level of the fund, but also the higher the expected rate of return.
Myths about pensions
‘Inflation is eating up my money’
Typically, pension funds have a rate of return. If the rate of return is positive, it will help to grow your savings and also cope with inflation. So far, the average rate of return of Estonian pension funds has been 4.2% per annum and it has exceeded inflation, however, the ambition and performance of LHV pension funds have been more than a good average.
‘I won’t even reach retirement’
You can withdraw your pension money when you want, but you must take into account the current tax regime. In addition, what is accumulated in the II pillar is heritable, but the rights of the state pension, i.e., the I pillar, are not. The average life expectancy in Estonia is currently 74 for men and 82 for women.
‘I invest better myself’
When times are good, investing seems very easy and everyone wants to do it themselves. However, there is no other unique system like ours, where the state contributes much more than you do. Take advantage of all the preferential investment products offered by the state, such as the II and III pension pillar, as you will certainly save up more than you would on your own.
‘The retirement age is always being raised’
While people are currently working out of their own volition, working will become the new normal in the future as the retirement age moves further away. One of the beneficial changes of the pension reform is the flexibility of withdrawals. You can withdraw money in any case – but it is better to do it when you are older and other income is lower.
‘I want to reduce existing commitments’
Withdrawing money before retirement age is simply too costly and doing so makes you miss out on a unique savings scheme that turns 2% of your gross salary into 6% of your personal pension money. Take your time to assess the different options and come for a consultation. If you leave the II pillar now, you will not be able to rejoin it until 10 years have passed.
‘Management fees are too high’
Estonian pension funds have reduced fees by about 2.5 times within the past 10 years. Fee rates are at or even below the level of pension systems in other countries. LHV’s management fees are average in Estonia, but the results are the best over the past 15 years.
‘Rate of return is poor’
Pension accumulation is a long-term process, and during this time the economy is hit by many crises. It is important to be a winner in the long run. The assets of LHV pension clients were better protected during the last major economic crisis from 2008 to 2010.
‘The government changes, so the public policy of the state may change’
Lengthy court disputes in 2020 showed unequivocally that what is accumulated in the II pillar is the personal property of a person that cannot be taken away at will by any government. As long as the state offers the possibility of converting 6% of your tax money into your personal pension through the II pillar, with you contributing only 2% of your gross salary, it is worth holding on to this option. There is no other investment solution as attractive as this.
‘Unexpected costs need to be covered’
We understand that there are all sorts of situations in life and sometimes unexpected expenses cannot be avoided. But there are other ways to collect, such as the III pillar. The III pillar is one of the most flexible investment options, where you can add money in the amount you want and withdraw it as soon as you need it. In addition, the state refunds the 20% income tax on contributions to the III pillar. Example: if you pay EUR 1,000 into the III pillar this year, the state will refund EUR 200 to you next year. Read more about the III pillar.
‘My children are my pension pillar’
Of course, children want to help their parents, but they have their own responsibilities too, and it is possible that you may be reducing their chances of one day being able to manage their future in a better way. After all, it is a good feeling to be able to look after yourself in old age.
‘I keep all my banking in one place’
The truth is that things should always be where they perform well. Over the last 15 years, LHV has shown that it is good place for your pension to grow. Keep your pension where it grows the most efficiently.
‘I am putting money from the II pillar into the III pillar’
This is unlikely to be a wise decision, as you will first have to pay the 20% income tax when withdrawing money from the II pillar, and then you will also not be able to count on the social tax portion (4%) that has been added by the state to the II pillar. In addition, you will not be able to rejoin the II pillar for the next 10 years.
Let us know if you have any questions
Together we will find the right solution.
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Do you value different investments and risk spreading?
LHV Pensionifond XL is suitable if
- you have more than 15 years left until retirement,
- you are prepared to take above-average risks,
- your aim is the long-term growth of your pension savings.
LHV Pensionifond L is suitable if
- you have more than 10 years left until retirement,
- you have average risk tolerance,
- your aim is the long-term growth of your pension savings.
Want to keep the money you have collected?
LHV Pensionifond S is suitable if
- you have 2–5 years left until retirement age,
- you have low risk tolerance,
- your aim is the preservation and modest growth of your pension savings.