Mandatory Funded Pension

Mandatory insurance¹

• Until 31/01/2020: all economically active persons born after 1982 (incl. self-employed persons and civil servants) insured in the statutory old age pension scheme.

Voluntary insurance

• All economically active persons insured in the superannuated pensions scheme.
• Economically active persons born before 1982 insured in the statutory old age pension scheme.

General finances

• Fully funded personal pension plans based on contribution payments (incl. state allowances) and capital revenues.
• Persons can choose between different pension funds with different levels of investment risk.

Contribution rates

• Fixed share of monthly gross earnings (2%) paid by the employee (transferred by the employer) and an additional fixed share of 4% as part of the 20% monthly statutory pension contributions (transferred by the Tax Board).² Self-employed persons contribute the same rate on the basis of their income tax declaration once a year.

State support

• Additional monthly state contribution for raising a child up to 3 years of age for one of the two parents equalling 4% of the national average wage (max. possible payment period: 3 years) as a subsidy to the parent’s individual account.

• The ‘Estonian Pension Register’, which falls under the authority of the Ministry of Finance, keeps track of the pension accounts, i.e. information on submitted applications, chosen funds, contribution record, acquired shares of pension funds, data on the shares and payments.
• The ‘Tax Board’ collects the contributions and sends them to the bank account of the ‘Estonian Central Securities Depository’ in the state treasury; the ‘Estonian Central Securities Depository’ directs the contributions to the pension fund chosen by the person.
• The ‘Financial Supervisory Authority’ regulates licenses and oversees the management of the pension assets.
• Licensed banks (fund managers) manage the pension fund assets.
• Pension funds pay benefits directly to the eligible person in case the accrued capital is less than 50 times the rate of the national pension.
• In case accrued capital is more than 50 times the rate of the national pension (EUR 221.63 in 2020), a pension contract with an insurance company must be concluded and the fund transfers the accrued capital to the company selected by the person.

Qualifying conditions

• Based on reaching the retirement age of the standard old age pension of the statutory old age pension scheme.

Early retirement

• No options for early retirement available.

Deferred retirement

• Retirement can be deferred; deferment is compatible with payment of the standard old age pension (and vice versa).

Combining employment & retirement

• Termination of employment is not a precondition for claiming pension benefits.
• Contributions to the scheme must be paid in case of employment activity after reaching the standard retirement age of the statutory old age pension scheme.

Pension benefits

• Accumulated capital through contribution payments (and investment yields, minus administra-
  tive costs and costs/fees of pension provider.
• Life-long annuity paid monthly (providing possibility for inheritable rights on the remaining capital); option for fixed-term payments (monthly, quarterly or annually) if the value of the units is small.
• Guarantee that sum of invested capital contribution payments is available during payout phase; no losses in nominal amounts (exception: in cases where parties can agree on no guaranteed nominal amount and higher investment risks borne by the participant).

Taxation and social security contributions

• Overall tax exemption of total income (combined income from pension benefit and other earnings) of up to EUR 6,000/year (up to EUR 500/month); total income between EUR 500/month and EUR 2,100/month is subject to progressive income tax rate; total income higher than EUR 2,100/month is subject to income tax.
• Pension benefits are not subject to social security contributions.