Pensionable age is determined based on when you started accumulating your III pillar pension:

Before 2021:

If you have voluntary pension fund units that you acquired before 2021 or if you concluded a supplementary funded pension insurance contract before 2021, you can start receiving your III pillar pension from age 55. For example, if you are 55 years old and you have III pillar voluntary pension fund units or a supplementary funded pension insurance contract concluded before 2021, you can start receiving III pillar pension.

After 2021:

Those who started accumulating their III pillar pension in 2021 or later are subject to the standard pensionable age minus five years. This means that if your pensionable age is 65 years, you can start receiving III pillar pension from age 60. For example, if you are 60 years old and the pensionable age that applies to you is 65 years. Since you started accumulating III pillar pension in 2021 or later, you can now start receiving III pillar pension.

There are several options for receiving III pillar pension, including lifetime pension, fixed-term pension and lump-sum payment or partial lump-sum payment. Lifetime and long-term fixed-term payments are exempt from income tax, while shorter-term fixed-term and lump-sum payments are subject to 10% income tax. In the case of no work ability, your payments are exempt from income tax. When making these decisions, it is important to consider your financial needs and goals.

III pillar pension payment options

There are several options for receiving II pillar pension, which you can also combine with each other:

• Lifetime pension
• Fixed-term pension
• Lump-sum payment or partial lump-sum payment

Lifetime pension and fixed-term pension

The payments of lifetime pensions and fixed-term pensions spread over a minimum average number of life years are exempt from income tax. The payments of fixed-term pensions with a shorter term as well as lump-sum or partial lump-sum payments are subject to 10% income tax. If you have been declared to have no work ability, your payments are exempt from income tax, regardless of how they are paid.

Pension deferral

If you defer receiving III pillar pension, you can grow your pension assets through investment performance and additional contributions. Deferring retirement also increases the amount of your pension, as the period of receiving pension is reduced.

Careful consideration of your pension options

Before you retire, consider what your income could be for the rest of your life. For instance, I pillar pension is paid for the rest of your life. In the case of III pillar, you can choose whether you want to receive it for the rest of your life or not.

Fixed-term pension

If you do not need a lifetime pension or if the accumulated amount is insufficient for a reasonable lifetime pension, you can consider a fixed-term pension with a term of at least the average life expectancy. These payments are exempt from income tax. Should you need a larger amount, you can withdraw this amount and continue receiving your fixed-term pension, taking into account that the amount of the payments will decrease accordingly. It is also possible to terminate the fixed-term pension at any time and choose another payment method instead.

Lump-sum payment

If the amount you have accumulated is too small or you already have sufficient regular income from other sources, you can withdraw the accumulated amount as a lump-sum payment or in instalments. These payments are subject to 10% income tax.

No work ability and III pillar

If you have been declared to have total incapacity for work, you can go on II pillar pension regardless of your age. If you receive pension with no work ability, the payments are exempt from income tax. Before submitting an application, you must register your loss of capacity for work in the pension register.

You can request an income tax refund on your III pillar pension insurance payments by declaring them in your income tax return. The tax incentive applies to up to 15% of your annual gross income or up to 6,000 euros per year. Applying for an income tax refund is straightforward and can be done through the e-service of the Estonian Tax and Customs Board. You can apply for income tax refund only if you have previously paid income tax during the year.

How to apply for income tax refund?

Make contributions to your III pillar

First, make contributions to your III pillar pension account. Make sure your contributions do not exceed 15% of your annual gross income or 6,000 euros.

Submit your income tax return

Next year, when the Estonian Tax and Customs Board opens the income tax return submission period, log in to e-MTA and complete your income tax return. Your III pillar contributions are automatically included in the pre-filled tax return.

You receive an income tax refund

After your income tax return has been submitted and reviewed, the Estonian Tax and Customs Board refunds you the income tax amount corresponding to the tax incentive received on III pillar contributions. You can only claim an income tax refund if you have paid income tax.

Example

If you have an annual gross income of €20,000 and make contributions to the III pillar in the amount of €3,000, you will receive a 22% income tax refund of €600 on the €3,000 when you file your income tax return next year.

III pillar lifetime pension is a pension payment that you will receive for the rest of your life from the pension assets you have accumulated in the II pillar. This means that once your retire, you will receive a monthly payment for the rest of your life. Lifetime pension offers financial security by offering a stable income in old age.

Concluding a pension contract

To receive lifetime pension, you must conclude a pension contract with an insurance undertaking. Upon conclusion of a pension contract, the III pillar assets are transferred to the insurance undertaking. You can choose to transfer all or just part of the accumulated amount.

Calculation of pension amount

The insurance company calculates the pension amount using a specific annuity formula. The amount of your pension depends on the following factors:

• Your age
• The amount of money you wish to use to conclude the pension contract
• Average life expectancy
• Pension contract conditions

Insurance contract with a guarantee period

A pension contract can be concluded with a guarantee period, which ensures that, in the event of your death, payments continue to be made to the person named in the contract, ie the beneficiary, until the end of the guarantee period.

In the case of a contract with a guarantee period, the payments are somewhat lower than in the case of a contract without a guarantee period. The longer the guarantee period you choose, the bigger the difference.

Impact of a small amount

If the amount that you want to use to enter into a lifetime pension contract is too small, the insurance undertaking may refuse to conclude the contract.

Taxation

Lifetime pension is exempt from income tax.

Fixed-term III pillar pension is a pension payment that is made during a specified period from the assets accumulated in the voluntary pension fund, ie the III pillar. Unlike a lifetime pension, which continues until the pensioner’s death, a fixed-term pension is limited to a predetermined period, such as 10, 15 or 20 years. The purpose of a fixed-term pension is to provide regular payments over a limited period, offering flexibility and higher monthly payments compared to a lifetime pension.

Fixed-term III pillar pension

If you are of pensionable age or have up to five years until reaching pensionable age, or are 55 years old and held units of a voluntary pension fund or had a supplementary funded pension insurance contract concluded before 2021, you can use the assets accumulated in the III pillar in the following ways:

• As a fixed-term pension from pension funds (supplementary funded pension)
• As a fixed-term pension from an insurance undertaking

Term options

When choosing the pension term, you can:

• select the recommended term, which is calculated based on your life expectancy at your current age;
• set the term yourself.

The term must be in full years, such as 20, 17 or 10 years. The longer the term, the longer your pension will be paid, but the smaller the amount of pension. The minimum term is one year.

Taxation

Exempt from income tax: Fixed-term pensions are exempt from income tax if you choose the recommended term that is equal to or longer than the average life expectancy.

10% income tax: If you choose a shorter period, an income tax rate of 10% applies, provided that at least five years have passed since you acquired units in a voluntary pension fund or concluded a supplementary funded pension insurance contract.

Fixed-term vs lifetime pension

Fixed-term pension: The payment of the pension ends after a fixed period. There is a possibility that the payment of pension may cease before the end of your life.

Lifetime pension: If you wish to receive pension for the rest of your life, you will need to enter into a lifetime pension contract with an insurance undertaking.

Supplementary funded pension is a fixed-term pension that is paid from voluntary pension funds. If you have units in several pension funds, units from all pension funds are redeemed upon payment.

How to receive funded pension?

To receive III pillar pension payments, ie funded pension, you must submit an application for opening a funded pension. For instance, you can submit the application in the self-service of the Estonian Pension Centre.

Frequency of payments

Payments are made until the expiry of the term of the funded pension. With funded pension, you can choose the frequency of your pension payments:

• once a month
• once a quarter
• once a year

Term choice

When choosing the term, ie the period of receiving the pension, you can:

• Select the recommended term, which is calculated based on your life expectancy at your current age.
• Set the term yourself.

Length of the term

The term must be in full years, such as 20, 17 or 10 years. The minimum term is one year. The longer the term, the longer your pension will be paid, but the smaller the amount of pension.

First payment of a funded pension

The first payment is made in the calendar month following the month in which the application was submitted, provided that you opted for monthly payments on the application.

A lump-sum payment from the III pillar offers a flexible opportunity to gain access to a larger sum of your pension assets immediately. While the application process is easy, it is also important to consider the risks of taxation and loss of long-term financial security. A lump-sum payment allows you to withdraw all or part of your pension assets accumulated in the III pillar at once. A lump-sum payment may be necessary, for example, to cover major unexpected expenses.

There are no restrictions on withdrawals from the III pillar: you can withdraw your accumulated funds at any time and in any amount that suits you. To this end, you must submit an application for payment.

You can submit the application in:

• the internet bank
• the ‘My pension account’ section of the website of the Estonian Pension Centre

Lump-sum payments from the III pillar are subject to income tax, with a tax rate of 10% applied to payments made at pensionable age.

Note! If you have been declared to have no work ability, your pension is exempt from income tax, regardless of how your pension is paid.

Fixed-term pensions are exempt from income tax if they are set for the recommended term, ie for a period equal to or longer than the average life expectancy.

If you have been declared to have no work ability, your pension is exempt from income tax, regardless of how your pension is paid.

Tax rate 10%

Pensions with a duration shorter than the recommended term and lump-sum payments made at pensionable age or within five years of reaching pensionable age are subject to a 10% income tax rate. The same rate also applies to persons aged 55 and over who held units of a voluntary pension fund or concluded a pension contract before 2021.

Tax rate 22%

If you withdraw the supplementary funded pension before you are eligible, and if less than five years have passed since you concluded your pension contract or first acquired units, the payments are subject to 22% income tax.

In the case of inheritance, if the inherited pension fund units are redeemed from the pension fund and the successor receives the payment in cash, the payment is subject to 22% income tax.

Lifetime pension is exempt from income tax.

State Pension Insurance Act
The procedure for calculation of a pension qualifying period
Funded Pensions Act
Social Tax Act
Old-Age Pensions under Favourable Conditions Act
Superannuated Pensions Act

Social Insurance Board
Estonian Pension Centre
Ministry of Social Affairs
Ministry of Finance