The state has granted a significant tax incentive for third pillar funds – 20% income tax is refunded on contributions, which you can again save in the third pillar if you want.
If you ask your employer to make direct payments from your wages into the third pillar, no income tax will be withheld, and the amount you can transfer to the fund is respectively larger. In this case, there will be no income tax refund.
There are also tax incentives for withdrawing money from the third pillar. Once you have saved in a third pillar fund for at least five years, then after the age of 60, a lower tax rate of 10% applies to the disbursements (instead of the usual 20%).
While all employed people save 6% of their gross wages in the second pillar every month (2% is contributed directly from their wages and 4% is added from social tax), you can save considerably more in the third pillar. However, keep in mind that income tax will be refunded on an amount of up to 15% of your gross income (but not exceeding 6,000 euros) for the calendar year.
Money can be withdrawn from the third pillar at any time, and income tax must be paid on withdrawal.
Read more here: Have a look: how much can you invest tax-free in the third pillar this year?
*Those who started saving in the third pillar before 2021 will enjoy a 10% income tax rate on disbursements from age 55.
As contributions to the third pillar are not automatically deducted from your wages or social tax as in the second pillar, you make these contributions yourself, and they will be credited to the fund as soon as you have made the payment (or set up a standing order).
You can claim tax benefit on third pillar contributions in two ways:
When you transfer money to third pillar, the amounts contributed are automatically recorded in your tax return. Once you file your tax return, the government will pay back the income tax on those contributions. You have to make sure, that your contributions won’t exceed 15% of your annual gross income or 6000 euros (whichever is smaller). We have provided a calculator to calculate contributions.
If you ask your employer to deduct your third pillar contribution directly from your salary, then the employer will not deduct income tax on this contribution. The same maximum limit on 15% of total income or 6000 euros applies.
You can save any amount in the third pillar, there is no minimum. Here are some important things to keep in mind:
1. The optimal and maximum amount you should save in the third pillar is 15% of your annual gross income, but not more than 6,000 euros. This gives the biggest tax gain. Our calculator will help you make the calculation, and you can find more detailed explanations from investor Kristi Saare here.
The state is giving a great tax incentive to savers in the third pillar – next spring, you will get a tax refund on the amount contributed this year. Before looking for other investments, it is definitely worth making the most of the tax benefits of the third pillar every year. However, there is no point in investing more money in the third pillar than the tax-free limit. Read more about how the tax incentive for pension pillars will benefit you.
2. Don’t worry if you can’t save 15% of your gross income. For the beginning, set aside an amount that does not require you to sacrifice too much today. Start with as little as 25 euros a month and see if you can increase that amount next year.
3. The third pillar is an excellent tool for saving with a longer time horizon. As with any investments, don’t invest the money you need in the near future.
You can invest money in the third pillar as infrequently or as often as you like – every week or once or twice a year.
To keep your investments automatic and regular, it’s a good idea to set up a monthly payment order in your internet bank. An automatic transfer of money from your bank account to your future fund will keep your future self from resisting the temptations of your present self or distracting you from your daily life.
Regular investments are also the best way to diversify risks – in the long run, an investor that diversifies their fund unit purchases over time is likely to get the best results.
The income tax refund is calculated on a calendar year basis. That’s why it’s wise at the end of the year to check if you could increase your tax benefits with an additional contribution – read more here.
If you transfer money to the Tuleva Third Pillar Pension Fund, you won’t see the change in your pension account until the evening of the next business day.
For example, if you transfer money on the weekend, you will see the new units in your pension account by Tuesday evening. Furthermore, your transfer might not be sent from your bank on the same day, for instance, if you made the payment after the end of the business day.
In this case, you will have to wait another working day until you see a change in your pension account.
Log in to your internet bank and make a payment or change amount on your standing order.
If you start saving in the third pillar this year, you will get your income tax refund in the spring. Your pension contributions will automatically appear on your income tax return, and you will receive a tax refund after you have submitted your tax return.
Unfortunately not. If you do not declare your income in Estonia now, then it’s not the best idea to invest through the third pillar. The problem is that you will not get a tax refund on your contributions, but when you withdraw the money, the state still withholds income tax on the entire amount, as if you had initially received a tax refund.
Yes, it’s never too late to set aside for retirement. In fact, the Ministry of Finance statistics show that the average age of those who have joined the third pillar is increasing year by year.
However, suppose you have 10 years or less left to retirement. In that case, we recommend investing part of your assets in a lower-risk bond fund or bank deposit to reduce the impact of short-term market fluctuations because the Tuleva Third Pillar Fund invests 100% in stocks.
Yes, you can, but keep in mind that income tax is calculated for the pension account holder.
We invest passively and keep costs very low. In this way, we achieve a fund performance that goes hand in hand with world markets. Therefore, we can ensure that Tuleva pension funds’ performance will never lag far behind the average of the world securities markets.
No, certainly not. The Tuleva second pillar fund invests money in exactly the same securities as the third pillar fund. Although there is a significant tax incentive for contributions to the third pillar, the tax incentive for the second pillar is many times bigger. In addition, you will have to pay income tax on leaving the second pillar. This is an entirely unnecessary expense. See the calculation of the tax incentives of the second and third pillars in the example of Laura here.
There are two different applications for changing your second pillar fund:
1) a choice application, which directs your monthly pension contributions to a new fund and becomes effective immediately
2) an exchange of units application, which transfers your existing units to a new fund.
These applications are fulfilled three times a year on certain dates (1 May if the application is submitted before 31 March, 1 September if the application is submitted before 31 July, and 2 January if the application is submitted before 30 November).
The best way to protect yourself is to do nothing and stick to your strategy of low cost funds through both market boom and bust.
Jack Bogle, the founder of the world’s largest fund manager Vanguard, recommends: “Put your money in a low cost index fund and don’t peek!” One of the world’s most successful investors Warren Buffett recommends: “Keep buying it through thick and thin, and especially through thin. The temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something. Just keep buying.”
Markets are cyclical – there is always a fall after a rise and vice versa. At least that’s how it has been in the past. When you save for your pension, you are a long-term investor. The past is no guarantee for the future, but at least history has shown that a long-term investor does not need to worry about market cycles.
Look at it this way: markets will fall. This is certain. Also, it is certain that nobody knows when it will happen. If you doubt this, try to find a fund manager or analyst who has precisely forecast all recent market crashes – in January 2000, autumn 2007 and summer 2011 and who recommended to buy shares in the intermediate period. There are no such people – some were too optimistic and lost money and others missed out on market gains because they were too pessimistic. All Estonian pension funds have underperformed the market average because fund managers have sometimes been too bold and sometimes too scared.
If you manage to avoid the temptation of making decisions based on short-term market fluctuations and keep smooth-talking salesmen and scaremongering bank tellers at bay, you will get the world market average returns for your investments. Over the long term, these returns have been higher than what most professional fund managers have achieved with their active buying and selling.
By saving in Tuleva funds and becoming a member, you will get the most out of Tuleva. As a Tuleva member, you are not only a pension fund client but also a co-owner, and you can earn an owner’s income and decide on Tuleva’s development.
Tuleva’s idea is that people save money for their future together, leaving aside as many intermediaries and extra costs as possible – the more of us there are, the bigger the benefits from investing together.
A joining fee and membership capital are two different things. The joining fee was a one-off fee that gave you a membership number, the right to have a say in Tuleva’s affairs, and the opportunity to earn a membership bonus.
The membership capital reflects your membership bonus, which is 0.05% per annum of the volume of your fund(s) held in Tuleva, i.e. your investment return. It will be transferred into your account each spring once the previous year’s annual report has been approved and the general meeting of the association has approved the decision.
The world's leading analysts have determined that fees are the surest predictor of returns: the lower the fees, the better prospects for growth. (And higher fees correlate with poorer results.)
Expected returns depend greatly on the evolving rate of return, and neither we nor anyone else are able to guarantee a 5% annual return.
In a low-cost index fund your assets grow hand-in-hand with the average returns of world markets. Low-cost index funds have outperformed Estonian pension funds every year to date, but past performance is no guarantee of future performance.
Funds' average annual return before management fees
Average annual salary growth
Minimum eligible age
issued a licence to Tuleva fund manager and controls that our everyday operations comply with regulations.
is Tuleva pension funds’ depositary bank. Depositary bank approves every transaction with fund’s assets. Exactly like with bank’s own funds.
protects all pension fund investors against the worst in case fund manager causes harm to investors.
Membership fees are used to develop the Association and to represent the interests of members. The fees of our first members were used to raise the fund’s initial capital, introduce Tuleva to the general public, and make preparations to start the fund, including application for an activity license from the Financial Inspectorate. From this point forward, membership fees will be used for the following activities:
Every euro saved gives a Swede almost a third higher pension than the same amount saved by Estonians. Estonia needs a smarter and measurable pension strategy.
As the first and only association representing pension savers, Tuleva is a credible partner for Ministry of Finance and state legislative bodies. We participate in pension strategy discussions, where next to the officials only banks and insurance companies used to be represented.
We help to make better laws. The laws that protect the people. The laws that maximize our profits from our, not banks’ savings.
We have our first achievements. For example
We do not organise demonstrations or spread random complaints. We are direct, we analyse issues and offer constructive solutions.
Tuleva’s main principle is that people themselves save money for their future, using contemporary technologies and bypassing unnecessary middlemen and costs as much as possible.
Every year, each member who has transferred their second or third pillar to Tuleva pension funds, earns a member bonus. Member bonus is very small at first, but it will grow together with member’s pension assets. Bonus is transferred to your personal capital account at Tuleva. This is your ownership stake in Tuleva capital and this stake can earn you additional profit.
When Tuleva grows, our funds under management grow and we add new products to our offering, then the association will earn profit. The profit is then divided among members, as set in our Articles of Association.
As always with profit from entrepreneurship – this depends how well our venture is doing. The founders are convinced, that the 125-euro joining fee pays for itself many times over. But we do not give promises.
At the end of each year
Every member has a vote on annual general meeting and has a right to elect and be elected to Tuleva’s board of directors and other supervisory bodies. This is the official part and it is very important.
Every day we share our ideas and experience among Tuleva members in our Facebook group, e-mail, phone and working groups. Among our community, there are people who care about the society and have very different skills. Many are ready to take responsibility for ensuring us a better future.
Tuleva team listens very carefully to our members and uses their ideas for making Tuleva better. We are only starting and believe that the power of thousands of smart people can be used for increasing our common good.
Tax benefit is simple: the government pays you back the income tax on your third pillar contributions. Tax benefit applies to contributions that do not exceed 15% of your gross income or 6000 euros, whichever is smaller.
Your maximum contribution amount to third pillar is thus 15% x gross annual income. If your annual income is over 3333 euros per month (gross), then you can contribute to third pillar 6000 euros.
Tax benefit equals 20% x your third pillar contributions.
NB! Your tax benefit cannot be bigger than the income tax you have paid during the year. Thus: if your gross income is less than 614 euros a month, then your maximum contribution is less than 15% of your income. More precisely – your maximum contribution per month is then: gross monthly income x 0.964 – 500.
With less than 519 euro monthly income you are not paying income tax most likely and hence you do not have any tax benefit in contributing to third pillar.