The Estonian pension system consists of three "pillars":

  1. State pension: some base amount + amount based on work experience. Taxed as regular income at 20%.

  2. Mandatory Funded pension: The 2+4 pillar. The state adds 4% of your gross pay to the 2% you pay yourself into a pension fund (most funds are managed). Withdrawals require a contract with an insurance provider and are taxed as regular income at 20%.

  3. Supplementary Funded Pension: basically regular investment funds, except you get your income tax back for payments up to 15% of your yearly gross (up to 6000€) for investing in these. Withdrawing after the age of 55 has tax benefits (10% instead of 20%). Completely optional.

Currently there is much talk of a pension reform that would make the second pillar optional and allow people to withdraw (after presumably paying 20% income tax on it) any money already accumulated. Assuming that the reform passes and allowing for 30+ years until pension age, would it be advisable to withdraw the money to invest somewhere else?

If details are needed, assume 30 years to retirement, 20k accumulated, no big debt and an average of 4% interest over 10 years in the current fund.

  • Trying to anticipate future changes could become opinion based, and "would it ever be advisable to withdraw the money" might be too broad. It might be better to reword "Currently there is..." along the lines of "Assuming the second pillar is made optional... what are the pros/cons of (a) leaving already-accumulated money in the 2nd pillar; (b) withdrawing the money (to be spent / saved elsewhere?); or (c) moving the money to the 3rd pillar. Answers to that, especially choosing between (a) or (c) likely depend on where the 2nd pillar money is invested and your control over it. – TripeHound Oct 15 '19 at 6:46
  • The link given seems to omit too many details. Check out this pensionfundsonline.co.uk/content/country-profiles/estonia – mootmoot Oct 15 '19 at 8:33
  • It depends on how much you trust the Estonian government and those in power to not alter your social contract again. – paulj Oct 15 '19 at 11:49

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