Until 2027, you can start receiving your II pillar pension from the age of 60. This means that from the age of 60, payments made from the II pillar are taxed at a reduced income tax rate (10% instead of 22%).

Tax benefits also apply, regardless of age, to people who have become fully and permanently incapacitated for work.

From 2027 onwards, the statutory retirement age will depend on average life expectancy, and it will be possible to start receiving the II pillar pension up to five years before reaching the statutory retirement age.

Income tax benefits apply to II pillar payments during retirement. These benefits also apply, regardless of age, to people who have become fully and permanently incapacitated for work.

To receive a pension from the II pillar, you have several options. If needed, you can also combine them.

What is a lifelong (indefinite) pension?

A lifelong pension means that you enter into a contract with an insurance company.

You transfer part or all of your accumulated II pillar funds to the insurance company and, in return, receive a monthly pension for the rest of your life — regardless of how long you live.

Read more in the section „Important to know concerning this step: What is a lifetime pension or pension of unspcified term?”

What is a fixed-term pension?

A fixed-term pension means that you choose the period during which regular payments are made to you from the II pillar.

For example, you may choose to receive pension payments for 10, 15 or 20 years.

Read more in the section „Important to know concerning this step: What is a fixed-term II pillar pension?”

What is a lump-sum payment?

A lump-sum payment means that you submit an application to the Pension Centre and withdraw money from your II pillar at once — either the full amount or part of it.

The funds can be withdrawn at retirement age or up to five years before reaching the statutory retirement age.

Read more in the section „Important to know concerning this step: Whether, and if so how, to withdraw money from the II pillar as a lump-sump payment during retirement?”

The II pillar lifelong (indefinite) pension is a pension benefit paid to you from the funds accumulated in your II pillar for the rest of your life. This means that after retiring, you receive a monthly payment that continues until the end of your life. A lifelong pension is offered as a separate service by an insurance company.

What to consider:

To receive a lifelong pension, you must conclude a pension contract with an insurance company.

When concluding the contract, the funds accumulated in your II pillar are transferred to the insurance company. You may transfer either the full amount or only part of it.

The amount of the lifelong pension is calculated by the insurance company using a special annuity formula.

The amount of the lifelong pension depends on:

• your age at the time of concluding the contract,
• the amount from your II pillar that you transfer to the insurer,
• the expected remaining life expectancy in retirement (18.8 years according to Statistics Estonia, 2025 data),
• the terms and costs of the insurance contract (administrative fees, risk fees, etc.).

By choosing a lifelong pension, you transfer your II pillar assets to the insurance company. This means that your II pillar assets are no longer inheritable. The exact terms are set out in the insurance contract.

A lifelong pension provides financial security by ensuring a stable income in old age. However, once transferred to the insurer, the funds no longer earn investment returns for you, and insurance company fees apply to the payments.

Taxation

A lifelong pension is exempt from income tax. However, costs specified in the insurance contract apply.
Insurance contract with a guarantee period

Insurance contract with a guarantee period

A pension contract may include a guarantee period. In the event of your death, payments will continue to the person named in the contract until the end of the guarantee period. This person is called the beneficiary.

With a guarantee period, the pension payment is somewhat lower compared to a contract without a guarantee period. The longer the guarantee period, the greater the difference.

If the amount you wish to use to conclude a lifelong pension contract is too small, the insurance company may refuse to enter into the contract.

The pension contract is offered by the following insurance undertaking:

Compensa Life Vienna Insurance Group SE

Lifetime pension is exempt from income tax.

A fixed-term pension is a pension payment that you receive for a specific period after retiring. Unlike a lifelong pension, which provides monthly income for the rest of your life, a fixed-term pension lasts only for the chosen period, for example 7, 12 or 20 years. After that period ends, the payments stop.

There are two types of fixed-term pension:

1. Fixed-term fund pension

A fixed-term fund pension is paid from your II pillar pension fund. If you hold units in several pension funds, units will be redeemed from all of them when making payments. The fixed-term fund pension is paid until the end of the period you have chosen.

Read more in the section „Important to know concerning this step: What is a fixed-term pension from the second pillar (fund pension)?”

1. Fixed-term pension from an insurance company

To receive a fixed-term pension from an insurance company, you must conclude an insurance contract. After signing the contract, the Pension Centre transfers your accumulated II pillar assets to the insurance company, and the insurance company pays you the pension until the agreed term ends.

Read more in the section „Important to know concerning this step: What is a fixed-term pension contract with an insurance company?”
 

A fixed-term fund pension is a pension paid to you from your II pillar pension fund for a chosen period of time.

If you have units in several pension funds, units will be redeemed from all funds when payments are made. The pension is paid until the end of the chosen period, after which the payments stop.

What should you keep in mind?

How to apply?
To receive a fixed-term fund pension, you must submit an application to open the fund pension.

You can submit the application:

in the Pension Centre self-service portal, at a bank, or to your pension fund manager (provided the service provider has account manager status).

If you choose monthly payments, the first payment will be made in the calendar month following the submission of the application.

How often can payments be made?
You can choose to receive your pension:

• once a month,
• once a quarter, or
• once a year.

How long can the payment period be?

When choosing the term, you may:

• select the recommended duration (calculated based on your age and average remaining life expectancy), or
• determine the period yourself.

The term must be in full years (for example 20, 17 or 10 years).
The minimum term is 1 year.

The longer the term:

the longer the pension is paid, but the smaller each payment will be.

What if you acquire new fund units later?

If you acquire new pension fund units after submitting your application, you do not need to take any further action.
The new units will automatically be taken into account when calculating the next payment.

Can you stop the fund pension?

Yes.

You may stop the fund pension at any time. After stopping it, you may:

• agree on a new fund pension under new conditions,
• choose a lifelong pension,
• choose a fixed-term pension from an insurance company, or
• take a full or partial lump-sum payment.

Taxation (simple rule)

• If you divide the payments in retirement over at least the average remaining life expectancy (approximately 18–19 years) or a longer period, II pillar fixed-term payments are exempt from income tax (0%).
• If you choose a shorter period than the average remaining life expectancy (for example 10 or 15 years), 10% income tax will be withheld from the payments.

A long fixed-term pension should not be feared.

If you need a larger amount during the period, you can withdraw it separately and continue receiving the fixed-term pension afterwards. However, you should keep in mind that withdrawing an additional amount will reduce your future pension payments.

You may also stop the fixed-term pension at any time and choose another payout option.
 

A fixed-term pension paid by an insurance company is a way of withdrawing your II pillar funds by concluding a contract with an insurance company. Under the contract, you transfer part or all of your accumulated II pillar assets to the insurance company and receive a monthly pension from the insurer for the period specified in the contract.

To receive a fixed-term pension from an insurance undertaking, you must enter into an insurance contract. Once you have concluded a fixed-term pension contract, the Estonian Pension Centre will transfer the assets accumulated in your II pillar to the insurance undertaking. The insurance undertaking will pay you the pension until the maturity date.

When entering into an insurance contract, you may:

• use all the assets accumulated in your II pillar, or
• conclude a fixed-term pension contract for a smaller amount.

The remaining II pillar assets can be withdrawn in other ways: 

• in the form of funded pension from pension funds;
• as a lump sum;   
• as a partial lump sum.

If you only used part of your accumulated II pillar assets to conclude the fixed-term pension contract, you can use the remaining assets in the pension fund as well as the assets added to the II pillar to:

• conclude a new pension contract,
• choose funded pension, or
• withdraw the remaining money as lump-sum payment(s).

If you wish, you can also transfer the assets to the previously chosen insurance undertaking and thus increase the amount of your payments. To specify the terms of the fixed-term pension contact and enter into it, you need to contact the insurance undertaking.

You can conclude a fixed-term pension contract with the following insurance undertaking:
Compensa Life Vienna Insurance Group SE

Taxation

How is a fixed-term pension paid under an insurance contract taxed?

The income tax rule for a fixed-term pension paid by an insurance company is the same as for a fund pension — 10%.

• If the contractual payment period is at least equal to the average remaining life expectancy (as of 2024, at least 19 years) → Income tax = 0%
• If the contractual payment period is shorter than 19 years → Income tax = 10% (applies to each payment)
   

You can withdraw money from your pension investment account (PIA) under favourable conditions up to five years before going on old-age pension. To receive payments, you must first sell the securities held in your PIA.

You can then choose from three options:

• Regular payments or funded pension: to this end, you must transfer the funds in your PIA to a pension fund. If you set a payment period that corresponds to your life expectancy, you can use the money with a 0% income tax rate. In the case of a shorter period, a 10% income tax will apply.
• Lump-sump payment, subject to a 10% income tax.
• Lifetime or fixed.term insurance contract.

Note! In the case of incapacity for work, you can withdraw the money income tax-free.

If you are at retirement age or less than 5 years away from reaching retirement age, you may withdraw your accumulated II pillar funds either as a full lump-sum payment or as partial payments.

Lump-sum payment

A lump-sum payment means that you withdraw the entire amount accumulated in your II pillar at once, and your II pillar will end.

• If you withdraw your II pillar funds at retirement age, the entire amount is subject to 10% income tax.
• By withdrawing the full amount, your II pillar ends.
• You may rejoin the II pillar no earlier than 10 years later.
• The full withdrawal is paid out after the application has been submitted, within the statutory processing period (in practice with a delay of several months).

Partial lump-sum payment

If you do not wish to receive regular payments (fixed-term or lifelong pension), you may apply for a partial lump-sum payment.

A partial lump-sum payment means that a chosen amount — smaller than the total accumulated in your II pillar — is paid out to you. Instead of withdrawing all funds at once, you may withdraw them in parts.

• You may submit one partial withdrawal application per calendar month.
• You may make partial withdrawals as many times as you wish.
• Your II pillar remains active, and the remaining funds continue to earn investment returns until the final withdrawal.
• If you eventually withdraw the entire remaining amount, your II pillar ends.
• The remaining pension fund units stay on your pension account and continue to be invested. You may withdraw them later when needed.
• You may also later use the remaining funds to conclude a lifelong or fixed-term pension.

How to submit an application?

You can submit your application:

via your internet bank

in the Pension Centre self-service portal (“My Pension Account”)

Lump-sum and partial withdrawals are also possible if you use a pension investment account.

Taxation

A lump-sum or partial lump-sum payment at retirement age or up to 5 years before reaching retirement age is subject to 10% income tax.
 

Read more in the section „Important to know concerning this step: Why is it not a good idea to withdraw all your pension money at once?“

• You can only withdraw all your accumulated funds in a lump sum.
• The withdrawal will be subject to 22% income tax.
• You will be subject to a 10-year restriction on rejoining the II pillar.
• You can only withdraw money from the II pillar as a lump sum only twice in your lifetime.
• There is a minimum delay of five months between submitting your withdrawal application and receiving the money.

In general, a financially balanced and reasonable choice is to withdraw II pillar pension payments on a fixed-term basis — that is, to choose a fixed-term fund pension.

By choosing this option, you allow your II pillar assets to remain invested in the fund while withdrawing money in retirement as regular monthly payments, calculated so that the assets last for the chosen period (for example, 20 years).

Reasons:

• Flexible (you can adjust the amount and make additional withdrawals if needed).
• Compound interest continues to work, as the funds remain invested.
• Reasonable taxation (regular payments are more tax-efficient than a lump-sum withdrawal). No additional fees apply to the payouts.
• Good predictability and transparency (fixed payment schedule; can be combined with the I pillar and other income sources).
• The remaining funds in the II pillar remain inheritable.
• If your chosen period is longer than 10 years, you may choose to keep the funds in a higher-risk fund.

Important — be aware of the risks:

• With a fixed-term pension, payments end once the chosen period expires. After that, your monthly income may decrease significantly.
• Your funds remain invested in the II pillar fund. While this may increase returns over time, it also involves risks (such as fluctuations in fund performance).

Lifetime pension is exempt from income tax.

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.

Tax rate 10%

Pensions that are set for a shorter than the recommended term as well as lump-sum and partial lump-sum payments made at pensionable age or up to five years before reaching the pensionable age are subject to income tax. In such a case, the tax rate is 10%.

The basic exemption for pensioners which is not used under I pillar, can be applied to II pillar payments taxed at the 10% rate.

Tax rate 22%

If you withdraw your funded pension before reaching pensionable age and there are more than five years left until pensionable age, the withdrawal is subject to 20% 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.

Note! Payments made from the II pillar, which are subject to 22% or 10% income tax, and payments made to the successor do not reduce basic exemption (up to 6,000 euros per year).

If you have been declared to have total incapacity for work, you can go on II pillar pension from 1 January 2021, regardless of your age.

If you receive pension with no work ability, the payments are exempt from income tax.

Options for retirement:

• lifetime pension,
• fixed-term pension,
• lump-sum payment.

Notification of no work ability

Before submitting an application, you must register your loss of capacity for work in the pension register.

In the self-service portal of the Estonian Pension centre under My pension account, there is a special query for it: find the menu item My queries, choose Notification of no work ability and click the button Update.

Note! You have the right to payments under favourable conditions only if you have been declared to have total incapacity for work.