TALLINN — Only one-third of Estonia’s second tier pension plan participants are continuing with the program after the government stopped its contributions and the bank-managed funds lost money.
The government suspended its 2 percent payments to the second pillar from June 1, 2009 until Dec. 21, 2010 due to the lack of funds, and Monday is the last day for Estonians to decide whether they want to continue their own contributions or not. Only 214,399 out of 592,095 people have decided to continue their contributions to the program, which invests the money in a bank or investment-managed fund of their choice.
Despite the downturn of contributors, the finance ministry said the level of participation was better than expected. Veiko Tali, vice chancellor of the Ministry of Finance told Baltic Reports said the ministry expected only 25 percent of participants to continue, but not one-third.
According to the finance ministry in 2011 the contributions will continue based on the 1+2 percent system, and in 2012 the former 2+4 system will continue. For those who voluntarily continue the payments into the II pillar now, in 2011 a 2+2 system will apply, and from 2014 to 2017 a 2+6 percent compensation system will apply.
Banks stand up for fund performance
Despite the decline in returns, more than 80,000 clients of Swedbank and 70,000 clients of SEB have already signed to continue the payments.
Mart Siilivask, a Swedbank spokesman, said that forgoing the 2 percent investment of one’s salary will not improve someone’s quality of life.
“People, whose income, for example, is 50,000 krooni, have now earned 35,000 krooni into their pension fund within seven years. Would it have been possible in some other way?“ Siilivask said.
Neither Tali nor the banks want to tell people what to do and suggest to decide themselves.
“It’s not voting for or against, it’s up to people to decide whether it’s reasonable for them to continue or not, and if at the moment the situation is really tough and every kroon is important then they shouldn’t have additional savings, but if there’s a chance to save, then they could continue the contributions,” Tali said.
SEB, Swedbank, and Tali agree that the younger a person is, the less it will affect them, but if a person is older, especially those who were born before 1954, then every payment is important.
“If we assume that the funds will rise faster in closer years, and if their salary is higher, then it’s more reasonable to them to continue, but no-one can tell what will happen in economy,” told Tali. But according to legislation the compensatory payments can only be done if the nominal growth is five percent.
“If the nominal growth is under five percent then the payments will not start automatically, but that affects only those who will not continue the payments,” told Tali.
The contributions were temporarily stopped in June 1, and the changes will not affect the payments of the pension.
Those who decide to take a brake on second tier payments can request to join the 3-6 percent system. Therefore to those who pass the payments in 2010, the break is only temporary as in 2011 one percent of their salary will be sent to the II pillar in addition to the two percent contribution by the state.
