Funded pensions

Tax resident or non-resident?

Obligation to make contributions to the II pillar funded pension system depends on whether you are a tax resident of Estonia or not. You may ask more about the tax residency from your employer or from Tax Board.

  • If you are not tax resident of Estonia and you will work in Estonia less than 6 month, you don’t have to join the II pillar funded pension program.
  • If you are already a tax resident or if you will work in Estonia longer than 6 month, you’ll become a tax resident automatically. In this case, subscribing to the II pillar funded pension is mandatory for persons, who were born in 1983 or later.

Compulsory funded pension – the second pillar of the pension system

Submitting an application to join the pillar represents a binding application – it is not possible to waive the funded pension.

The funded pension is based on preliminary financing – a working person himself or herself saves for his or her pension, paying 2% of the gross salary to the pension fund. **The state adds 4% **from the 33% social tax calculated on the salary of the employee.

Joining the funded pension is compulsory for those born in 1983 or later. Eligibility for funded pension disbursements applies for those who have joined the compulsory funded pension and have accrued money in the fund (you are a unit holder) and those who have reached retirement pension age. It is not important whether you are already receiving the state old-age pension or not.

The schemes for disbursement of mandatory funded pension payments:

  • pension agreement;
  • funded pension;
  • single payment.

As to how the disbursements are made, this depends on the total amount accrued, i.e. the value of all of the units belonging to unit holders in mandatory funded pensions (total value of all units). To enter into a pension agreement, you must apply to an insurance company.

To agree on a funded pension or receive a single disbursement, submit an application to the account manager (such as a bank); an application may also be submitted electronically under the “Minu konto” (My account) section of the Pension Centre website.

The payment options:


Pursuant to the Taxation Act, the basic income tax exemption for the state pension is €2,700 per year or €225 per month. This means that the part of the pension that exceeds €225 per month is subject to taxation with income tax. At the same time, pensioners who are working and who are not working have also the right to the general tax exempt income, which is € 2,040 per year or €170 per month.

Thus, a pensioner may receive in total €395 of tax free payments from the first and second pillar per month. The part of the first and second pillar payments that exceeds €395 in one month is taxed with income tax.

NB! The general tax-free amount can be exempt only if a person has submitted a written application. The respective application is submitted to the local pension office.


Units of mandatory funded pensions are inheritable. To carry out the succession proceedings, the successors must contact a notary. After the succession certificate has been received, the successors have to file an application to a suitable bank office for inheriting the units.

If successors are natural persons and legal entities together, they must rely on their respective conditions.

In case of inheritance, if the successor is a natural person, the inherited units may be transferred to the successor’s pension account or cashed out. It is also possible to transfer a part of the inherited units to the pension account of the successor and cash the other part out on the basis of the same succession application. Income tax must be paid on cashed out units.

Documents to be submitted to the bank:

  • application
  • copy of the notarized succession certificate
  • agreement on the distribution of the estate (if there are more successors).

Read more about succession at the Pension Centre website.

Additional contributions to the second pillar of the pension system

In addition to parental and family benefits, the state supports parents upon saving for pensions with the so-called parents’ pension. This means that payment of additional contributions to the mandatory funded pension (the second pillar of the pension system) can be applied for when raising a child born on 1 January 2013 and later.

Contributions to the second pillar of the pension system are made to a parent who has joined the mandatory funded pension system. One of the parents has the right to the contributions as of the birth of the child and the contributions shall be paid until the child attains 3 years of age.

The state shall pay a parent, spouse of the parent, legal guardian or foster parent 4% of the average national remuneration per child to the second pillar of the pension system. If more than one person has the right to apply for contributions with respect to a child, they shall agree on the person who shall use the right to the contributions.

Supplementary funded pension - the third pillar of the pension system

Joining the voluntary funded pension means that the individual gives permission for a securities account to be opened in his or her name and makes contributions to a voluntary pension fund. A securities account may be opened at any Estonian commercial bank (account administrator banks). It is possible to save money in the third pillar in pension insurance at a fixed interest rate. With a fixed interest rate, it is clear what the yield on the money accruing in the fund is.

You have a choice between two types of insurance:

  • pension insurance at a guaranteed interest rate;
  • pension insurance with investment risk.

Agreements for supplementary funded pension may be signed at life insurance companies or a fund manager. Before entering into an agreement, we recommend that you consult a specialist in the relevant area. All banks and insurance companies have advisers for this purpose.

More about III pillar can you read at the the Pension Centre website.

Last amended: 29-05-2017 00:00 | Compiled by:, Social Insurance Board