Around a third of Estonian and Lithuanian second pillar pension savers withdrew money from their pots early by the end of last year, following reforms aimed at giving people more control over their savings, according to Swedbank.

As at the end of last year, 267,000 people in Estonia had applied to withdraw money before retirement age, equivalent to almost a third of those who had joined the second pillar.

Total payments amounted to €2.3bn, of which the first payment alone was €1.3bn.

Swedbank chief economist, Tõnu Mertsina, noted that, in Estonia, exiting the second pension pillar and withdrawing money was still open, while in Lithuania it was possible to exit the pillar and withdraw your contributions together with investment returns within two years.

In the first wave in Lithuania, around 514,000 people left the second pillar, representing almost 37 per cent of those who joined.

After the first exit wave, Lithuanian second pillar pension assets fell from around €10.6bn at the end of 2025 to approximately €6.8bn in the second quarter of 2026, with another exit opportunity at the end of 2027.

Total payments amounted to €4.2bn, of which around €2.9bn went to households, representing approximately 3.4 per cent of Lithuania’s GDP, while in Estonia it was around 3 per cent of GDP.

Mertsina said that the withdrawals reaching households was a large injection of money for the economies.

“A pension fund is not just a vehicle for accumulating money for future retirees,” he added.

“It is also an institutional investor that provides long-term capital to the economy. Pension funds invest in corporate stocks and bonds, real estate, and private and venture capital.

“They have helped finance companies and have been important investors in Estonian startups.”

However, the share of local investment in Estonian pension funds fell to 12 per cent (€722m) last year, while Estonians had increased their overseas investments.

“If pension funds do not invest enough in Estonia as local long-term investors, money will have to be sought elsewhere – often abroad,” said Mertsina.

“This does not mean that investment will not be made, but the Estonian capital market will become thinner and our companies' dependence on foreign capital will increase.

“However, the availability of foreign capital may not be stable due to geopolitical risks, as foreign investors have reassessed the risk level of our region.”

Meanwhile, in Lithuania, the direct role of pension funds financing local investments was “relatively limited”, with most of their assets invested in foreign financial instruments and investment funds.

At the end of 2025, Lithuania second pillar pension funds had invested around 8 per cent (€840m) in the local economy, with a large share in government bonds.

“Pension reforms should distinguish between releasing money from the pension pillar and creating wealth,” Mertsina stated.

“Freeing up money can boost the economy quickly and in the short term. People consume more, the turnover of consumption-related companies increases, loans are repaid, and some of the money ends up in real estate or financial assets.

“However, long-term economic growth is primarily born from productivity and investment – a new factory, better technology, energy infrastructure, increased export capacity, and so on.

“It also comes from the ability of companies to hire people and pay them higher wages. This is precisely why the long-term capital of pension funds is valuable to the economy.

“The pension system is therefore also an important part of the capital that influences economic growth and its potential. In addition to pension funds, a deeper bond market and, if necessary, state co-investments would help to inject more money into the Estonian economy.”

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