- The funded pension contribution rate is 2%. The withheld payments shall be transferred to the bank account of the Estonian Tax and Customs Board by the 10th day of the month following the month of payment
- The Estonian Tax and Customs Board shall forward the contribution received to its bank account to the bank account of the registrar of the Estonian Central Register of Securities within 15 working days.
- 4%, which is added to the employee's own contribution on the account of the social tax, is calculated by the Estonian Tax and Customs Board itself and transferred to the specified bank account.
Legal acts and additional information
Starting and ending dates for withholding of payment
In connection with the restructuring of the second pillar of the funded pension, the withholding of the payment is started and ended three times a year: from 1 January, 1 May or 1 September (depending on when a particular person submits a choice application, an application for making payment, for exemption from payment or withdrawal of money to the account administrator of the second pillar). In this regard, the employer is obliged to check the starting or ending dates of the payee's payment obligation in December, April and August.
The starting or ending date of the obligation to withhold a funded pension payment can be checked on the dedicated website of the Estonian Pension Register through the subscription simple query or subscription mass query based on personal identification code.
Withholding of payment
Not all employees participate in the mandatory funded pension scheme, but only obligated persons of the second pillar of the funded pension (who are obliged to join or have voluntarily joined the second pillar).
Pursuant to § 6 of the Funded Pensions Act, the mandatory funded pension system applies only to Estonian residents. Consequently, the non-resident’s earnings declared in Annex 2 to Form TSD are not subject to contribution to mandatory funded pension.
The concept of a resident is laid down in § 6 of the Income Tax Act A natural person is obliged to notify the tax authority of the creation or change of residency (subsection 6 of § 6 of the Income Tax Act) on Form R established by the Minister of Finance. For the sake of the accuracy of tax accounting, we recommend that employers should inform their non-resident employees thereof.
Although the obligated person is considered to pay the contribution, the payment is effected by withholding it on the remuneration paid to the obligated person. The persons who are obliged to pay social tax, i.e. all employers operating in Estonia, have to withhold the payment.
An employer has to check whether the person to whom he or she makes payments subject to social tax is an obligated person or not.
Ending date for withholding of payments
If a person who has joined the second pillar retires, payments will not end immediately if the person continues to work.
- If the application for receiving payments from a funded pension under the second pillar is submitted between December 2020 and the end of March 2021, the withholding of payments will end from 1 September 2021.
- If the person retires in April, May, June or July, the withholding of payments will be ended from January of the following year.
- If the person retires in August, September, October or November, the withholding of payments will be ended from May of the following year.
The money collected after the beginning of retirement until the end of the withholding of payments will also be received later in the form of a pension or a lump sum payment, depending on how the retired person has chosen to receive the pension.
Amendment of the funded pension contribution rate as of 1 January 2025
People making contributions to the so-called second pension pillar have the opportunity to increase their pension savings by increasing the rate of contribution. A higher rate of contribution may be necessary for those who have for some reason suspended contributions to the second pillar. If a person who has left the second pillar decides to rejoin the pillar after ten years and chooses a higher contribution rate, he or she will have the opportunity to recoup the loss of the pension resulting from the interim withdrawal.
Funded pension
As of 1 January 2024, persons who have joined the second pillar will have the opportunity to increase their 2% funded pension contribution rate to 4% or 6% if they wish. For this purpose, a corresponding application must be submitted to the registrar of the pension register (Pensionikeskus) or to the account administrator (LHV Pank, Luminor Bank, SEB Pank, Swedbank, Tuleva Fondid). Applications can be submitted from 1 January 2024 until 30 November 2024. Until the deadline for submission of the application, it is possible to amend the application by submitting a new application for amending the rate of contribution. The last application submitted will be the valid one. If the application has been received by the registrar or account administrator by 30 November at the latest, the new contribution rate will be applied from 1 January 2025.
By default, the current contribution rate of 2% remains in force. The funded pension contribution rate is valid until the pension fund subscriber submits a new application to amend it. The application can be submitted by 30 November each year at the latest and the rate can be changed once a year. The new contribution rate will apply from 1 January. If the application is submitted in December, the person will be obliged to pay the contribution (2%, 4% or 6%) as of 1 January of the year following next year.
If a person who has joined the second pension pillar has, for example, more than one employer, the same rate of contribution applies to him/her at all of the employers. Employers can check the contribution rate from the Estonian Funded Pension Registry ‘s website. Organisations with a large number of employees can make a mass query to the Funded Pension Registry to obtain funded pension data.
In addition to the fact that the obligation to pay contributions to the funded pension of employees must be checked three times a year, the rate of the second pillar contribution applicable to the employees’ wages must also be checked once a year.
The amendment to the funded pension contribution rate concerns only the contribution withheld from a person’s wages (2%). The state will continue to add 4% from the 33% social tax calculated on wages, and this rate will not be changed.
Sole proprietor’s funded pension
A sole proprietor who pays the contribution to his or her funded pension must submit an application to the pension registrar or account administrator in order to increase the rate of contribution. A sole proprietor has the same possibilities to change the funded pension contribution rate as an ordinary natural person. The options for amending the contribution rate can be found in the text below.
The contribution must be paid once a year and the amount of the contribution is calculated by the Estonian Tax and Customs Board on the basis of the taxable income adjusted with social tax declared on the sole proprietor’s business income return (form E). The Estonian Tax and Customs Board will issue a tax notice to the sole proprietor no later than 30 days before the due date (1 October) concerning the contribution to be paid. The amount payable can also be found in the income tax return information.
A sole proprietor is required to transfer the amount specified in the tax notice to the bank account of the Estonian Tax and Customs Board by 1 October at the latest.
1. The state shall suspend contributions to the second pillar
From 1 July 2020 until 31 August 2021, the state will suspend contributions to the second pillar at the expense of social tax (4%) (subsections 19–22 of § 13 of the Social Tax Act).
Exception is made for persons born between 1942 and 1960 – their contributions to the second pillar of their funded pension that are made at the expense of social tax (4%) collected will not be automatically stopped from 1 July 2020 and will continue as usual. However, they can, if they wish so, suspend 4% and 2% contributions from the social tax collected for payments to the second pillar starting from 1 December, if in October 2020, they present the corresponding application for stopping the payments from being made.
Nothing changes for the employer in terms of declaring and paying the social tax on the tax declaration TSD due to the suspension of payments made for funded pension part of the social tax. The employer declares and pays the social tax in the usual way, all necessary activities are performed by the Estonian Tax and Customs Board itself.
2. Suspension of payments at the request of the person
For suspension of funded pension payments (2%) it is possible from 1 December 2020 until 31 August 2021 (§ 67³ of the Funded Pensions Act ).
In October 2020, everyone joining the pillar will be able to decide whether to stop making the 2% payment from their salary earned. To do this, they must submit an application for non-payment of the contribution to the funded pension with a court administrator or registrar in the internet bank, bank office or via the website of the Pension Centre. Based on this application, the payment of the 2% contribution to the funded pension will then be suspended from December 2020 until 31 August 2021. People born between 1942 and 1960 can also suspend making payments to the funded pension; if they apply to not make the payments, they will also suspend making their 4% payment to the funded pension.
Starting 1 November 2020, employers must check the suspension or continuation of withholding of their employees' payments to the funded pension. If an employee has submitted an application for the suspension of payments to the funded pension, then on tax declarations TSD for December 2020 until for August 2021, the employer may not declare the payment to the funded pension of that employee. If the employee has not submitted an application for suspension of the payments to the funded pension, then the contributions to the funded pension shall be continued to be declared as usual.
The person submitting the application also does not make the payment to the funded pension from the income received on an Entrepreneur Account.
A self-employed person who has submitted the application to suspend making contributions to the funded pension shall not make the payment to the funded pension from 1/12th of the business income earned in 2020.
Last updated: 31.10.2023