28.11.2024
48% of Estonian people under the age of 39 consider more than 2000 euros per month to be a normal living income at retirement age, according to a study commissioned by LHV. This is nearly three times more than the average old-age pension in Estonia today.
Today, the average pension in Estonia is less than 800 euros. However, a survey conducted by Norstat revealed that only 14% of Estonians consider an income of 700–1000 euros to be able to live a normal life in old age. “This clearly shows that if people do not save more themselves, many people in Estonia will have to cope with significantly lower than expected income in the future. At the same time, Estonian pensioners already perceive difficulties in coping, and when thinking about the future, the situation is all the more worrying as the cost of living shows continued growth,” said Vahur Vallistu, Chairman of the Management Board at LHV Varahaldus. According to the survey, 38% of the respondents consider 1001–1500 euros to be a normal amount for living in retirement, 28% of the respondents consider a pension of 1501–2000 euros to be sufficient, and 17% of the people in the sample consider a pension of more than 2000 euros to be sufficient.
It was also revealed that younger age groups have a higher expectation of income in retirement. Nearly a quarter of 18–29 and 30–39-year-olds pointed out that they would need more than 2000 euros per month to live a normal life in retirement. By contrast, the corresponding figure was 21% for the 40–49 age group, 14% for the 50–59 age group and 8% for the 60–74 age group.
According to Vallistu, the results clearly reflect the gap between the average pension in Estonia today and people’s wishes. “This is especially evident in younger age groups, who expect the highest income in retirement, but are often passive in taking concrete steps to increase their future security,” Vallistu said. He stressed that there are fewer and fewer people active on the labour market in Estonia, but the number of pensioners is increasing. This means increasing pressure on state pension, and in most developed countries there is an understanding that people need to be encouraged to save independently for a dignified old age. “In order to create a financially safer future, we must take matters into our own hands and not rely solely on the state. It is clear that if a person does not save consistently, the loss of income upon retirement will be very painful, because according to studies, the average pension in Estonia will start to make up only a third of the average salary. It is worth starting with opportunities with tax incentives, and in Estonia they exist in the form of pension pillars,” Vallistu noted.
He added that young people have a very valuable advantage in saving for retirement, which is time. The farther the retirement age, the more time for the money to work for the person. “Saving in the second and third pillars are the cornerstones of building future-proofing. This is all the more so because now your personal contribution to the second pillar can also be raised to 4 or 6 per cent, which will give an even greater boost to capital growth in the long run. In addition, due to the increase in income tax, a higher tax incentive will be applied to contributions made to the third pillar, and starting from 2025, 0.22 euros will be refunded with an income tax return on each paid euro in the year following the contribution. Therefore, continuing or starting the save in the third pillar is worth even more,” Vallistu said.
You can increase your second pillar contributions until 30 November in your home bank or at www.pensionikeskus.ee. Contributions will be made according to the new request from January 2025. An application to change the contribution rate can also be made after 30 November, but then the new rate will only apply from 2026.
LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank Limited. The Group employs over 1,200 people. As at the end of October, LHV’s banking services are being used by 448,000 clients, the pension funds managed by LHV have 116,000 active clients, and LHV Kindlustus protects a total of 169,000 clients. LHV Bank Limited, a subsidiary of the Group, holds a banking licence in the United Kingdom and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.
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