10-year wait to rejoin Estonian second pillar should be reduced, Luminor argues

A 10-year wait to rejoin the Estonian second-pillar pension system should be reduced, according to Luminor, as its research showed that a third of citizens would like to rejoin the pension system.

The results of a survey, conducted by Norstat on behalf of Luminor, showed that 42 per cent of Estonians do not contribute to a second pension pillar or have never joined one. However, 32 per cent of respondents would be willing to start saving into the second pillar again if given the chance.

"The pension reform that made the second pillar voluntary is now some years behind us. People who used to use the money for short-term needs are now ready to save for the long term again. The change in mindset can certainly also be due to better awareness and more flexible pension funds, which make saving more attractive," Luminor pension fund manager, Vahur Madisson, said.

Currently, 40 per cent of Estonians who responded to the survey are actively accumulating in the second pillar of their pension, and 12 per cent have also increased their contribution.

"The second pillar is the most advantageous savings vehicle, both in terms of state contribution and tax efficiency. If a young person starts saving today and contributes 6 per cent of their gross salary to the second pillar, to which the state adds 4 per cent, in 40 years' time their pension could be 50-60 per cent of their final salary. Without the second pillar, this amount would be in the 30-40 per cent range,” Madisson explained.

Therefore, he has called for this 10-year period to be reduced, as it would allow people to make up some of the lost time and improve people’s confidence in retirement more generally.

According to Madisson, the results of the survey show that the number of people wanting to re-join is significant and that re-joining should be thoroughly analysed and studied at the national level.

"It is important to clarify whether a long pause for rejoining is appropriate and under which conditions shortening the deadline would be most effective and beneficial for people," said Madisson.

However, some sceptics would not consider rejoining – 31 per cent of respondents would not rejoin the pension pillar, according to the survey, and 20 per cent think they would rather not. According to Madisson, this could be because they save in other ways, that people do not think about pensions at all, or that they are not aware of the profitability of the second pillar and its necessity.

"With an ageing population, the state's capacity to pay pensions is shrinking, making a personal contribution to secure old age increasingly important. The early start and consistency of accumulation are also key, which is currently difficult to regain for those who have left the second pillar, as they can only rejoin the system 10 years after leaving,” he said.

The survey, commissioned by Luminor, was carried out in June by Norstat. The survey included 1,000 respondents aged 18-74 from each of the Baltic countries.



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