The government endorsed the principles of the 2nd pillar pension reform

At today's meeting, the Cabinet of Ministers approved proposals by the Finance Minister to reform Pillar II pension, making voluntary entry into and departure from Pillar II optional. 

"Government parties have agreed on the principles for reforming Pillar II," Prime Minister Jüri Ratas said after today's cabinet meeting. He added that, as the most significant change, the reform would introduce more freedom of choice into pension decisions. “People can continue to accumulate in Pillar II as they have done so far. At the same time, it is possible to stop making payments but keep the money raised in the pension fund. The third option is to stop making payments and withdraw the money collected, ”the Prime Minister explained.

“With the second pillar reform, we will significantly increase people's flexibility in retirement savings. This means being able to start collecting at just the right moment and also being able to get out of the pillar and use the money raised, ”said Finance Minister Martin Helme. “If a person has decided to withdraw money from Pillar II, he / she can rejoin the pillar once more. If the newcomer may not be thinking about retirement yet, instead opting out for Pillar II and spending money somewhere else, then 10 years later he may have a different opinion. ”

Minister of Social Affairs Tanel Kiik added that the coalition had jointly agreed that everyone would be able to raise money for retirement through the second pension pillar. “The additional freedom of choice means that if you wish you can take greater responsibility for investing your retirement money. In any case, it is important to think about the retirement age at an early age, because, unfortunately, the national old-age pension alone does not provide an income comparable to average wages. Each of us needs to carefully consider our choices for retirement savings in the long run, ”says Kiik.

When the reform enters into force, joining and leaving the 2nd pillar of pension will become voluntary for everyone - you will need to submit an application to the pension center or the bank. Pillar II contributions can be suspended by leaving money raised so far in the pension fund where it will be reinvested. It is also possible to suspend contributions by withdrawing money from the pension fund. For those who wish to invest their retirement money themselves, leaving the fund will have the opportunity to transfer Pillar II funds to a personal investment account. 

Up to € 10,000 *, the money so far accrued in Pillar II will be paid in one installment, with larger amounts being paid in three installments. The payout is subject to income tax. The money shall be paid out within one year, on the date of exchange of the units of the pension fund. 

Those who have left Pillar II will have the opportunity to rejoin the pillar after 10 years. Newcomers can withdraw money and leave the pillar once more after a 10-year accumulation period. In the future, such people will only receive a pension from Pillar I or, if they have joined, from Pillar III. They can no longer join Pillar II. 

People born in 1982 and earlier, who are only now voluntarily joining Pillar II, will be able to withdraw their accumulated money for the first time 10 years after joining the Pillar. 

If a person has money in Pillar II, it is up to the retirement age to decide whether to withdraw the money in the form of a lifetime or term pension or one at a time.  

The reform will start in 2020, when the deadline for applications to complete payments, start them in the new year, or withdraw money is August 31. Starting in 2021, the normal application deadlines are 31 March, 31 July and 30 November.

* The final cap will be decided at a cabinet meeting on September 12 after further analysis by the Ministry of Finance.


General principles of the reform annexed to the Communication (DOCX) .

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