Second pillar payments
When you reach retirement age, you will have several options for receiving your pension, and you can combine some of them.
You can start receiving second pillar pension five years before reaching retirement age at the earliest.
At LHV, you can choose between two payment methods
Pension fund
Payments will be made from the pension fund as long as there are units in your pension account. If you choose at least your life expectancy as the period of payments, you will not have to pay income tax on the pension fund.
Lump-sum payment
You can withdraw your pension money from the fund at your convenience, but please note that if you withdraw it in a lump sum at retirement age, you will have to pay 10% income tax.
In addition, there is a third option for payment – a pension contract: in this case, your pension is paid by the insurance undertaking and is either fixed-term or lifetime. Compared to a funded pension, where the yield depends on the performance of the fund, the collected amount earns a fixed interest in the insurance company (1.1% as of 2024) and the final amount depends on the mortality table used by the specific insurance company. In addition, the unused amount is not inheritable unless a guarantee period has been determined.
- You can combine different payment methods: funded pension, a lump-sum payment, as well as lifetime and fixed-term pension from an insurance company.
- For example, you can leave some of your saved money in the pension fund to earn a return and interest, and sign a contract with an insurance company to use the remaining amount. You can also withdraw some of the saved money as a lump-sum payment.
- In addition, you can combine first and second pillar payments because they are not dependent on each other. You can first choose one of them and postpone receiving the other while its value grows. Unlike the first pillar pension, which has no return component, you can continue to grow your pension money by drawing down a pension from the second pillar.
As the state favours the use of pension money in retirement, the tax benefit is the biggest if you use the money after retirement. There are three taxation variants.
Income tax free
- Funded pension and fixed-term pension received from an insurance company are exempt from income tax if the recommended or longer period of payments is chosen.
- A lifetime pension paid by an insurance company is also tax-free.
- Regardless of the method of payment of the pension, the pension is exempt from income tax for a person who is incapable of work.
Tax rate 10%
- A shorter than recommended period has been chosen for payments
- A lump-sum payment in retirement has been chosens
Tax rate 20%
If you withdraw the funded pension earlier than five years before the retirement age, the withdrawal shall be subject to a 20% income tax, except for persons with no work ability.
You can submit all your II pillar withdrawal applications at a suitable bank office, or in the "My Pension Account" section of the Pension Centre.
Worth knowing
- When submitting a funded pension application, you can set the period yourself for receiving pension payments. This means that you can choose how often and for how long you want to receive the pension payments from the fund
- If you submit a lump sum application, the payment will be made between the 16th and the 20th day of the calendar month following the month in which the application is submitted
Which payout is more beneficial to you?
*Average rate of return of the pension funds is 4%. The value of the fund units can increase as well as decrease, and the funds’ rate of return in the past periods does not constitute a promise or a point of reference for their rate of return in future periods. The preservation of the value of the sum invested into the fund is not guaranteed.
Funded pension | Insurance company pension contract | One-off payout |
Amount available 15000 € | Amount available 14 549 € | Amount available 13 500 € |
Compared to a funded pension, you receive 451 € | Compared to a funded pension, you receive 1 500 € | |
Income tax rate 0% | Income tax rate 0% | Income tax rate 10% |
Funded pension |
Amount available 15000 € |
Income tax rate 0% |
Insurance company pension contract |
Amount available 14 549 € |
Compared to a funded pension, you receive 451 € |
Income tax rate 0% |
One-off payout |
Amount available 13 500 € |
Compared to a funded pension, you receive 1 500 € |
Income tax rate 10% |
Method of calculation
Based on the entered parameters, the calculator calculates the approximate estimated amount that will be paid to you from the II pillar funds during your retirement age. In addition, the calculator allows you to compare which payout solution is more useful for you in retirement.
The amount available as funded pension payments is calculated using the following formula:
The amount available by insurance company's pension contract has been found using the following formula, taking into account the forecast of years to live published by Statistics Estonia:
The lump sum available with the payout is calculated using the following formula:
Annual pension payments during years spent in retirement
Funded pension
Insurance contract
One-off payout (divided over funded pension years)
| Funded pension | Insurance contract* | One-off payout |
Average payout per month 66 € | Average payout per month 64.46 € | Average payout per month 59 € |
One month payment in the first year 789 € | One month payment in the first year 767 € | One month payment in the first year 711 € |
One month payment in the last year 789 € | One month payment in the last year 780 € | One month payment in the last year 711 € |
Funded pension |
Average payout per month 66 € |
One month payment in the first year 789 € |
One month payment in the last year 789 € |
Insurance contract* |
Average payout per month 64.46 € |
One month payment in the first year 767 € |
One month payment in the last year 780 € |
One-off payout |
Average payout per month 59 € |
One month payment in the first year 711 € |
One month payment in the last year 711 € |
The data presented in the table is not a comparison of payment methods, but represents the estimated amounts of each payment method.
*The amount of the insurance contract is calculated under the following conditions | |
Insurance contract conclusion fee | 3% |
Guaranteed annual interest | 1.1% |
Administration fee on each pension contribution | 1% |
Income tax rate | 0% |
The exact pension insurance payment depends on the special conditions of the insurance company you have chosen.
Third pillar payments
You can use the money saved in the third pillar at any time you need. There are many payment options, from a lump-sum payment to funded pension.
At LHV, you can choose between two payment methods
Supplementary funded pension
Payments will be made from the pension fund as long as there are units in your pension account. If you choose at least the life expectancy as the period of payment, you will not have to pay income tax on the funded pension.
Lump-sum or partial payments
Payments are flexible: you can sell all your pension fund units at once or in parts. Please note that the applicable tax regime must be observed: you will have to pay income tax.
In addition, there is a third option for payment – a pension contract: in this case, your pension is paid by the insurance undertaking and is either fixed-term or lifetime. Compared to a funded pension, where the yield depends on the performance of the fund, the collected amount earns a fixed interest in the insurance company and the final amount depends on the mortality table used by the specific insurance company. In addition, the unused amount is not inheritable unless a guarantee period has been determined.
As in the case of the second pension pillar, the state favours the payment of the money accumulated in the third pillar only in retirement and over a long period. The tax exemption or the income tax rate (10% or 20%) depends on three factors:
- your age;
- the time of the initial acquisition of units and/or signing of the pension contract;
- your chosen method of payment: funded pension, a lump-sum payment or a contract with an insurance company
Income tax free
- Funded pension and fixed-term pension from an insurance company are exempt from income tax if the recommended or longer period of payments is chosen.
- A lifetime pension paid by an insurance company is also tax-free.
- Regardless of the method of payment of the pension, the pension is exempt from income tax for a person who is incapable of work.
- Pension is tax-free for a person who receives a death insurance benefit under a third-pillar pension insurance contract entered into after 1 May 2002.
Tax rate 10%
You will pay 10% income tax if you are at least 55 years old or retired and at least five years have passed since you initially purchased third pillar pension units.
You started saving before 2021
- You are at least 55 years old
- At least five years have passed since you initially purchased pension fund units
You started saving in 2021 or later
- You are of retirement age (statutory retirement age minus five years)
- At least five years have passed since you initially purchased pension fund units
Please note: If one of these two conditions is not met, the income tax rate is 20%.
Tax rate 20%
If you withdraw money before retirement age or if less than five years have passed since you initially purchased pension fund units, you will, in any case, pay 20% income tax.
If you wish to sell your III pillar fund units, you can submit an application at the LHV Pension Website, in the My Pension mobile application, at a suitable bank office, or in the "My Pension Account" section of the Pension Centre.
- You can indicate the sale of several different funds on one application
- If you sell units of several pension funds at once, bear in mind that the amount will be transferred to you after all the sale transactions specified on the application have been executed and the income tax accounted for
You can submit a III pillar funded pension application at a suitable bank office, or in the "My Pension Account" section of the Pension Centre.
Let us know if you have any questions.
Together we will find the right solution.
Reet Roos
Pension Consultant
Mon–Fri 8–17
680 2743
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