Nearly a quarter (22 per cent) of Estonians are not saving for retirement, research conducted by Norstat on behalf of Luminor has revealed, highlighting a lack of trust and growing concerns over the impact of inflation.

The analysis showed that Estonians predominantly save for retirement through the second and third pension pillars.

There were some age discrepancies, though, as the survey revealed that the proportion of those not saving for retirement is higher in older age groups.

In particular, it found that whilst 18 per cent of respondents in their 20s and 30s do not save for retirement, this rises to 26 per cent amongst those in their 50s.

"This has probably been influenced by the novelty of our pension system compared to other OECD countries, as well as the fact that previous returns were not as strong as they are now, because pension funds were not allowed to invest 100 per cent in shares," Luminor pension fund fund manager, Vahur Madisson said.

"This certainly influenced the previous decision of quite a few savers.

Indeed, the report found that the most common reason given by those who don't save for retirement, cited by 37 per cent of people who do not save, was the assumption that by the time they reach retirement age, the value of their saved money will have decreased due to inflation and other unforeseen events.

However, Madisson pointed out that pension funds primarily invest in assets that help reduce the impact of inflation.

"Even in conditions of high inflation, pension funds have been able to earn more than inflation has reduced the value of people's savings," he said. "Therefore, the real long-term return of the funds has remained positive."

Trust was also a key issue, as a quarter of those who are not saving for retirement said they are not putting money into the future because they lack trust in the Estonian pension system.

In addition to this, a fifth of respondents said they have not thought about saving for retirement. This was also the main reason for nearly half of people in their 20s who are not saving for retirement.

Despite the attitudes seen amongst savers, Madisson argued that the Estonian pension system and funds have "consistently proven themselves over the years".

"According to the latest news, the performance of Estonian pension funds has reached the top of OECD countries, and nearly 500,000 people continue to actively collect pensions," Madisson stated.

"Savings are extremely important to enjoy a carefree retirement, so non-collectors should think about their future expectations and get acquainted with new funds, where everyone can find a suitable one."

Madisson also warned that postponing the decision to save can mean a much smaller amount of money in retirement, as the effect of compound interest is most clearly manifested during a long savings period.

"The longer the savings period, the stronger the effect of compound interest at the end of the savings period," he explained.

"If there are still 5–10 years left until retirement, compound interest plays a very important role for a long-term saver."

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