Estonia. State to provide option of increasing second pension pillar deposits

The Ministry of Finance has drawn up an intention to allow people to voluntarily increase their second pension pillar deposits to 4 percent or 6 percent from the current 2 percent. The draft is currently on a coordination round.

Since the creation of the mandatory funded pension system, the rate of payment for the second pillar has always been 2 percent of a working person’s gross salary, but the finance ministry is planning amendments to the Funded Pensions Act, which would allow people to increase that rate to 4 or 6 percent.

“Instead of the current 2 percent rate, people that have joined the second pillar will be allowed to increase their rate to 4 or 6 percent. On the one hand, the goal is to keep that choice as simple as possible, which is why only two new rates have been offered. A higher rate allows people to save up more for their pension, but for the decision to be voluntary, the rates must remain realistic,” the draft’s explanatory memorandum reads.

The explanation also states that deposits into the voluntary third pension pillar in 2019 were 3.5 percent of all taxable income, which is why the ministry provided an option to increase second pillar deposits to 4 percent. “Those capable of contributing more can choose 6 percent,” the ministry wrote.

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