The contribution to the mandatory funded pension is a social security contribution established by the Funded Pensions Act for the purposeful financing of the second pillar of pension.
The provisions of the Taxation Act concerning taxes apply to social security contributions (hereinafter contribution).
The Estonian Tax and Customs Board checks the correctness of payment, determines the amount of payment to be paid, if necessary, collects it pursuant to the procedure provided for in the Taxation Act and applies coercive measures permitted by law to enforce obligations.
Person who makes the contribution
Not all employees participate in the mandatory funded pension, but only a certain group of persons who make the contribution. For the purposes of the Funded Pensions Act, the payer is the obligated person.
Obligated persons can be divided into two groups:
persons who have to join mandatory with a pension fund
persons who voluntarily join with a pension fund
A resident natural person (within the meaning of § 6 (1) of the Income Tax Act) is required to make the contribution provided that:
- the payer of social tax is obliged to pay social tax on behalf of the person or he or she (sole entrepreneur) pays the social tax
- the person has an obligation to make the contribution on remuneration specified in § 7 of the Funded Pensions Act
The obligation to make contributions arises on 1 January of the year following the year during which an obligated person attains 18 years of age (person who has joined the pension fund mandatorily). Obligated persons born in 1983 have the obligation to make contributions as of 1 July 2002. Persons born before 1 January 1983 have the right and obligation to make contributions if they have submitted a choice application (the person who has joined the pension fund voluntarily).
The obligation to make the contribution extinguishes on 31 December of the year of the first redemption day of pension fund belonging to the obligated person pursuant to subsection 40 (2) of the Funded Pensions Act.
The funded pension contribution rate is 2%. As the contribution is made by withholding contribution at the source of income, the withholding agent must check whether the person to whom the payments subject to social tax are made is an obligated person.
The obligation to withhold the contribution of a funded pension can be checked on the basis of a person’s personal identification code or by as mass inquiry. For elderly employees, the extinguishing date of the withholding of the contribution of the mandatory funded pension must be checked at the same address (the obligation to make contributions the mandatory funded pension extinguishing on 31 December of the year of the first redemption day of pension fund). This means that, for example, in case of attainment of the pensionable age an employee started funded pensions payment in mid-2019, the second pillar payments will be withheld from payments made until 31 December 2019 and payments made from 1 January 2020 will no longer be withheld from payments. For employees who have exceeded the retirement age and who continue to work and do not start receiving funded pension payments, the funded pension will continue to be calculated in the usual way.
The payment is required to be withheld by those persons who are obliged to pay social tax, i.e. all employers operating in Estonia.
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.
A sole entrepreneur is obliged to make a contribution to mandatory funded pension once a year from the business income declared in the income tax return of the natural person.
- Funded Pensions Act
- Regulation No. 64 of the Minister of Finance from 20 September 2005 “Procedure for Units of Mandatory Pension Fund”
Regulation No. 261 of the Government of the Republic from 20 December 2007 “Procedure for Calculation of Funds Corresponding to the Pension Rights of Officials of the Institutions of the European Communities and Receipt and Accounting of These Amounts on the Basis of the Estonian Pension System or the Pension Scheme of the Institutions of the European Communities"