Waiting period for rejoining funded pension scheme to be shortened to 5 years
The government approved a draft bill that, among other changes, would reduce the waiting period for rejoining the second pension pillar from the current 10 years to five.
The government has approved draft amendments to the Funded Pensions Act and the Taxation Act which, among other changes, would allow people who left the second pension pillar to rejoin after five years instead of the current 10-year waiting period. For example, people who withdrew from the pillar in 2021 or 2022 could, once the amendments take effect, apply to resume contributions as early as this fall and rejoin the system next year.
"We believe 10 years is too long a period. Five years is more reasonable, though there still has to be some restriction. In any case, the limitation is necessary to prevent movement at the expense of first-pillar pension funds," Finance Minister Jürgen Ligi (Reform) said.
Another major change concerns early withdrawals. In the future, people withdrawing money from the second pillar before retirement age would no longer have to take out their entire accumulated savings at once, but could instead withdraw only part of the funds if needed. After a partial withdrawal, people could begin saving again after five years.
At the same time, the rules would change so that if a person has already used the option of withdrawing second-pillar funds before retirement age and later rejoins the system, they would then continue saving until retirement. Rejoining the second pillar would remain voluntary and retirement conditions would not change: people could still retire using second-pillar funds up to five years before the official retirement age or in cases of lost work capacity.
The amendments would also stipulate that if the state in the future seeks to reduce the second pillar's share of the social tax contribution — currently 4 percent — to the detriment of savers, at least five years would have to pass between the adoption and entry into force of the change.
The law is planned to take effect on November 1 this year. The option for partial withdrawals and for resuming contributions without restrictions after suspending payments would take effect on January 1, 2028, as these changes require IT developments to the pension registry. In the short term, the draft law would increase state budget costs, with the impact projected at around €22 million by 2027.
At the same time, the draft law would introduce a new restriction. In the future, people would only be allowed to withdraw their accumulated pension assets before retirement age once.
According to the explanatory memorandum accompanying the draft amendments to the Funded Pensions Act and the Taxation Act prepared by the Ministry of Finance, the law should enter into force on November 1. This would allow people who exited the second pillar in September 2021 to apply to resume contributions starting this November. New contributions would then begin in May 2027.
The Estonian Banking Association believes this timeline would be too fast. In a letter to Finance Minister Jürgen Ligi, the association said that while the goal of allowing people to quickly resume saving is understandable, requiring applications to restart contributions next May to be submitted already this November would not leave former second-pillar participants enough time to familiarize themselves with the changes.
More than 580,000 people use the second pension pillar. According to comparisons among OECD countries, Estonian pension funds recorded the highest returns in 2024. Pension fund assets exceed €7.5 billion, of which around €760 million has been invested in the Estonian economy, the Government Communications Office said.
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Editor: Marko Tooming, Marcus Turovski
