The Estonian pension system
The Estonian pension system has three pillars. First pillar is state pension, this means that the state pays the pension for persons who have reached the retirement age.
The second pillar is mandatory funded pension. The aim of the second pillar is to directly put a part of employee’s salary to their personal pension.
The third pillar gives individuals the opportunity to insure their retirement years better with voluntary pension fund. Supplementary funded pension is not obligatory, persons can choose whether they want to invest in their retirement years or not.
In Estonia there are various of different pension schemes offered by the following banks:
- AS LHV Varahaldus (AS LHV Asset Management);
- AS SEB Varahaldus (AS SEB Asset Management);
- Danske Capital AS;
- Nordea Pensions Estonia AS;
- Swedbank Investeerimisfondid AS (Swedbank Investment Funds AS).
The insurance companies offering different pension schemes are the following:
- Compensa Life Vienna Insurance Group SE;
- Mandatum Life Insurance Baltic SE;
- ERGO Life Insurance SE Estonian branch;
- SEB Elu- ja Pensionikindlustus AS (SED Life and Pension Insurance);
- Swedbank Life Insurance SE.
Benefits of the private pension
The third pillar pension system is very flexible. Person can choose between two possibilities to subscribe to a supplementary funded pension, either acquire units of a voluntary pension fund or enter into an insurance contract. Person can determine the amount of contributions into the pension fund, and the amount is changeable.
When a person wants to receive money from the fund or insurance company, it is possible to cancel the contract with the pension fund or insurance company, or follow the requirements set out in the pension fund or insurance company contract terms and conditions, and then receive the payment.
The general rule in Estonia is that when a person reaches the pensionable age of 55 years or in the event where a person loses his capacity to work, the person will start receiving payments from the pension funds or insurance company according the agreement.
Repayment of income tax from private pension in Estonia
The benefit of the third pillar in regard of contributions, is that it’s possible to receive 20% income tax inducement on the contributions made during the taxation year. Although the contributions may not exceed 15% of the gross-income and the maximum contributions per year is 6000 EUR. Income tax rate 20% is charged for all sums with drawn from the insurance contract or pension fund before the person becomes 55 years-old. Person who is fully and permanently incapable to work is charged with 10% income tax.