I am proposing a different pension law, which should:

1. allow the citizen to make the right choices regarding their financial life;

2. simplify the choices and services to motivate citizens to make voluntary, long term investment in the pension system;

3. help the Social Insurance Board create effective services to support the citizens’ freedom.

The money Estonian citizens receive after they retire can come from two sources.

The so-called first pillar: money that every citizen will receive, collected through taxes on current workers, and distributed to current pensioners. They are calculated based on wage and working years, but they are quite low - and because of the aging demography of Estonia, they will keep decreasing in the future.

The second and third pillars are long-term, voluntary investment opportunities - which means that the money saved by the individual citizen keeps growing into private investment accounts, and is given back to the citizen during retirement. In the second pillar, money is collected automatically from 6% of the person’s salary. The third pillar is a long-term investment option, still in private institutions funds; its rules did not change significantly.

The 2021 pension reform biggest change is to make contributions to the second pillar voluntary - and "129,681 people have submitted an application to leave the second pension pillar after changes were introduced at the start of the year. This is 16.9 percent of people who joined." ( from err news, link at the bottom).

It means that a big part of the population might receive when reaching pension age, just the money from the first pillar. Which is not a lot of money! (you can check how much to expect from the first pillar here: https://pension.sotsiaalkindlustusamet.ee/en/calculator)

This reform leaves freedom of choices without giving the proper support, and not everybody is ready for this kind of freedom. Managing long-term finances is complicated and requires effort and preparation. I believe this should change, so that the citizens can more easily understand and make the right choices regarding their own finances.

What if the next pension reform was written to make everything less complex? What if it could help generate hype and attention around responsible investment?

I designed a proposal that wants to achieve so, based on a series of interviews with Estonian citizens, experts, and professionals from the public sector:

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Every citizen is automatically enrolled in a “second pillar” pension fund starting at the age of 18.

It is always allowed for the citizen to switch the investment fund for the money collected into its second pillar, at any moment, without additional fees. (this is how it already works)

It is allowed to collect the money from the second pillar fund only during the citizen’s 25, 40, 55 birthday years (1) - (subject to exceptions).

Exceptions: (2)

• in case of a health emergency;
• in case of prolonged unemployment;
• to complete the payment of the loan on the first house;
• in other cases of proven need, following consultation and approval by the Social Insurance Board office.

During those birthdays years, additional free consultations and seminars are offered to the citizen: on the topic of pension opportunities, investment and finance, saving methods. (3)

The contributions to the second pillar can also be increased manually, voluntarily adding money on top of the 2(+4)% automatically collected or increasing the automatic monthly collection from the salary. (4)

During the aforementioned birthday years, the citizen can receive money on its investment fund from any person or company, with a full tax refund for the sender, for a total maximum of 6.000€. (5)

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1. This is the big change proposed: creating a moment in life when everyone is naturally thinking about saving, investing, planning. Think about when you took your driver’s license: it was probably around the age of 18. Why? Because the law created the moment to take care of it. All of your friends are talking about it, your parents discuss it with you, you were probably jealous of older students from your high school who could already drive. It has become a rite of passage. Creating the same “hype” around specific ages, for the topics of saving and investing, can help people to get responsible and start studying and reflecting on the topic. Otherwise, just like going on a diet, you always push it to “next Monday”. It also makes the goals of investment shorter, easier to imagine. Sometimes it’s too hard to save money now, only to see them again in 50 years.

2. Investment should not only be for old age, but also in case of emergency, or to make other financially wise choices - for example, buying a house. This helps make the goal of saving more tangible, visible. In my experience, pension and old age is something young people do not want to talk and think about- showing investment makes it more approachable, closer, and most of all pleasant

3. The work and support services of the Sotsiaalministeeriu (it should be Sotsiaalministeerium) can now be more effective and proactive. For example, face-to-face consultations can be tailored for the needs of people of 25, 40, 55 years old - and all the invitations, opportunities focused for them, in those moments. I have had the chance of speaking with very competent professionals from the Sotsiaalministeeriu (it should be Sotsiaalministeerium), and I am sure they could use this chance to create new, better services.

4. The second and third pillars are now very similar. Why not make things easier to understand and manage? Let’s have just one pension pillar based on voluntary contributions.

5. A little push from friends and family can really help, to understand, motivate, act. If someone else throws in the first 50 euros to start a saving account, well, the first step is done. After that, it is just easier to follow.

Imagine how services can be different, to help Estonians invest and save early, and see their money grow. Imagine how they could be tailored for your needs at 25, 40, 55 years old.

Can you imagine receiving this message from the Social Insurance Board Customer Service? https://ibb.co/GxRXVfm (link to an image)

Can you imagine a relative of yours, turning 25, sending you this message?https://ibb.co/nCbZJ6s

Can you imagine a friend of yours, turning 25, sending you this link?https://ibb.co/cbx090D

And, for the remaining years of your life, there is nothing to worry about, no infinite options, no aggressive selling from banks. Just wait, and let your money grow.

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err news article (in english):

https://news.err.ee/1608159100/17-percent-of-people-apply-to-leave-second-pillar-pension-fund

Other useful links on the Estonian pension system:

https://pension.sotsiaalkindlustusamet.ee/en/calculator

https://www.pensionikeskus.ee/en/pension-reform-2021/

https://www.seb.ee/eng/pension/estonian-pension-system