We implemented two positive changes in our funds. First, we lowered fees once again — now, the ongoing fees for all Tuleva funds are just 0.31%. Second, we clarified our recommendation to save in an equity fund regardless of age. The goal remains the same: to create the best conditions for growing our money as savers.

The more savers in Tuleva, the lower the fees for everyone

Since the launch of Tuleva, we have lowered our fees six times. Back in 2017, we started with a 0.5% fee, and now, as of March, the total ongoing fees for both the second and third pillar funds have dropped to 0.31%.

Investing is a scale business — the larger the assets we manage, the lower the costs per saver. Since our last fee reduction in November, our funds have grown by €100 million, allowing us to lower fees again.

I’m confident that we’ll reduce fees even further in the future. After all, Tuleva is owned by its savers, and we have every reason to lower costs as soon as it’s sustainable. 

For Tuleva association members, saving in our funds is even more beneficial. As owners, we get part of the fee back — every year, we receive a 0.05% member bonus on our second and third pillar savings in Tuleva funds.

For those who are not members of Tuleva association, you can find some slightly lower-fee index funds in the pension fund selection at banks. These are also solid options for long-term saving. We’re genuinely happy that index fund fees across the board have significantly decreased over the last five years.

It’s only sad that the fees for banks’ old actively managed funds have not followed the same trend. In fact, nearly two-thirds of Estonia’s second-pillar savers are still in those expensive funds. The reality is that banks cover their high costs and generate profits for their owners at the expense of these savers.

Money should generate returns for as long as possibleIn addition to lowering fees, we also clarified our recommendation to stay in an equity fund regardless of age. Previously, we set a conditional age limit at 55, while still outlining cases where stock funds could be considered beyond that. We’ve learned that our recommendation needs to be even clearer.

So, here it is: A low-cost equity fund is the best choice if you don’t plan to withdraw your entire second pillar within the next five years.

The key point is that the biggest risk for Estonians when saving for retirement isn’t market fluctuations — it’s not saving enough. Very few of us earn high enough salaries to accumulate a sufficient amount without earning returns on our savings.

Risk and return go hand in hand in investing. While stock prices fluctuate more than bonds, the historical long-term returns of stocks have been significantly higher. Finnish and Swedish pensioners don’t live well because their governments hand out generous benefits, but because their savings have compounded strong returns over decades.

What should you do?

Market fluctuations won’t worry us as savers if we use our second and third pillar funds as a regular pension supplement. The state pension (first pillar) provides stability. That’s why Sweden, for example, automatically keeps people saving in equity funds even at an older age — because it serves as an addition to their national pension. In Sweden, people can’t even withdraw their pension savings in a lump sum; they can only take it as monthly payments.

What Sweden has made automatic for its citizens, we can choose to do manually. The good news? You don’t have to do much at all. Tuleva savers can confidently continue accumulating money in our second and third pillar stock funds until retirement without unnecessary fund switches.

If you eventually need to start using some of your savings, just log in to our website and set up regular drawdowns (by signing a fund pension agreement).

Historical stock market data suggests that with this approach, there’s less than a 2% chance that your total withdrawals will be lower than your total contributions — even if you moved your savings into stock fund just before starting withdrawals.

Of course, this is not a guarantee — the future may look very different from the past 100 years in the stock market. It’s human nature to underestimate long-term statistical probabilities. But looking at it the other way around, this is how we can make the most of the contributions we’ve made over our lifetime.

The updated fund prospectuses, along with official explanations, are linked here: II Pillar Prospectus and III Pillar Prospectus (in Estonian). These took effect on March 3, 2025.

(1) Over the past five years, fees for all Estonian second-pillar index funds have decreased by 10–20%. Meanwhile, fees for actively managed funds have mostly increased. You can see the fee trends here.

(2) Finland’s largest pension fund manager, Ilmarinen, has achieved an average annual return of 6% over the past 27 years, while Sweden’s national pension fund, AP7, has delivered an average annual return of 9% over 23 years. Sources: Ilmarinen 2024 annual report and AP7 Safa website.

(3) More specifically, historical data suggests that with 95% certainty, a person who moves their savings into an equity fund at age 55 will see their assets exceed both their starting balance and interim contributions after 10 years. For those interested in statistical analysis, this Google Sheet provides further details. I’ve kept the calculations as simple as possible.

Dear Tuleva members and investors,

The year 2024 was marked by three significant milestones. First and foremost, we, as savers, once again managed to increase our contributions: together, we set aside 130 million euros from our salaries over the year, and more than 14,000 people decided to raise their contributions to the second pillar. Second, our assets surpassed the 1 billion euro mark, allowing us to lower fees once again. And third, we pursued a fair resolution through the courts regarding the amount of the fine imposed on us at the start of the year.

We, the investors of Tuleva, have done very well in recent years

For most of us, the assets in our pension accounts have grown substantially over the past three years. While three years ago, only 4,000 people had accumulated more than 25,000 euros in the second and third pillars, that number has now risen to 14,000. Additionally, we now have 4,900 people with assets exceeding 50,000 euros – a significant increase from just 1,000 people three years ago. (1)

Our formula for success is simple: start saving early, contribute as much as possible, and ensure your assets earn a fair return (in Estonian). However, this is easier said than done. Sure, everyone wants to secure their own future and that of their loved ones, but many are unwilling to do so at the expense of their current financial comfort. As a result, most people end up saving less than they actually need. (2)

Our goal is to support one another in saving consistently for the future while making the most of the opportunities provided by the second and third pillars. Although we can’t contribute directly to one another’s funds, we can make saving easier and more effective by sharing experiences, encouraging one another to take the necessary steps, and leveraging the economies of scale from pooled pension funds to secure favourable terms for saving.

Today, Tuleva has over 77,000 savers. Many are just starting their savings journey, but an increasing number are saving with real determination, contributing at least 16% of their monthly income to our funds.

Our goal is to reach 100,000 determined savers by the end of 2027. Last year, we made strong progress towards this target. Over 28,000 people began contributing to the third pillar or increased their current contributions, while more than 14,000 Tuleva savers raised their second pillar contributions. As of the beginning of this year, we already have 6,641 people whose savings rate places them firmly in the determined savers group, up from 4,200 a year ago.

What particularly pleases us is the number of people who increased their contributions to the second pillar. The best way to remain committed to saving is to make it automatic. The contributions to the second pillar are deducted before the salary is paid out, so the saver doesn’t have to rely on self-discipline or memory. What’s especially encouraging is that most of the 14,000 savers who raised their contribution rate opted for the maximum of 6%. Higher contributions will be reflected in the pension accounts in February (in Estonian).

Collectively, we saved a substantial amount last year – 130 million euros. Of this, we transferred 75 million euros to the third pillar, meaning that in the spring we’ll receive 15 million euros back from the stas as income tax refund.

Another significant contributor to our asset growth was investment returns. Last year, global stock markets rose by 25%, and over the past five years, the average annual return has been 11%. Considering the historical performance of financial markets, it is highly likely that there will be future years and even five-year periods with negative returns. However, the best long-term results will be achieved by those who don’t attempt to predict market fluctuations but instead focus on avoiding unnecessary fees and resist the temptation to move their assets out of the stock market into deposits simply due to their fund manager’s concerns. (3)

How do we grow?

We ended the year with 64% more assets than at the start of 2024. Contributions and asset transfers by new savers increased Tuleva’s assets by 36% over the year, while withdrawals by those leaving the second and third pillars or switching to other funds reduced our assets by 5%. This growth rate aligns remarkably closely with the projections in Tuleva’s 100,000 savers strategy from two years ago, demonstrating that, at best, you achieve what you dare to dream.

In November last year, the volume of our funds surpassed 1 billion euro mark, and we began the new year with 1.1 billion euros in assets. This growth was driven not only by strong global market returns but also by contributions from savers, redirected assets from new savers and a very small number of savers leaving our funds.

Last year, current and new savers brought 101 million euros to our funds, transferring assets previously invested in other pension funds or insurance contracts. In total, more than 80,000 Estonian pension savers made exchange transactions with their second pillar assets last year, and Tuleva welcomed nearly 6,800 of them. The key driver of our rapid growth, however, is loyalty: once we as savers choose Tuleva, we stick with the choice, even if the next salesperson in a shopping centre or bank lobby tries to win us over.

During each 4-month exchange period, less than 1% of the assets in our second pillar funds are withdrawn through exchange transactions. In contrast, the remaining fund managers lose between 2.5% and 7% of their assets in this way.

This provides us with a significant cost advantage. Most fund managers spend millions of euros annually to attract new customers, relying on costly armies of salespeople. Unfortunately, they lose a comparable amount each year due to asset outflows from departing customers. Banks’ fund managers often claim that their high expenses are driven by the high cost of active asset management. However, it’s the need to sustain these expensive sales teams (in Estonian), coupled with their modest performance due to high customer turnover, that truly makes their operations costly. (4)

This is why our funds continue to grow while others remain stagnant. Tuleva’s market share among Estonian pension funds has doubled over the past three years. At the beginning of 2025, we narrowly overtook SEB, which had been the third-largest fund manager in the market.

Larger volume → lower fees

The growth in assets enabled us to reduce fees once again. At the same time, we took the opportunity to simplify our fee structure: all our funds now have a uniform ongoing charges rate of 0.32% per year. In addition to this low fee, for Tuleva members investing with us is even more advantageous than these fees suggest. Each Tuleva member will receive 0.05% of the value of the assets accumulated in Tuleva’s second and third pillars as a membership bonus every year, credited to their personal member capital account.

The bar representing Tuleva is a single colour, reflecting the consistently low fees across all our funds. This ensures that Tuleva savers can confidently avoid the risk of inadvertently choosing a fund with significantly higher fees after seeing an advertisement for a low-fee fund.

How to talk honestly about pension funds?

At the beginning of last year, we appealed the Estonian Financial Supervision Authority’s decision to fine Tuleva 100,000 euros for shortcomings in our advertising. The court ruled that while our advertisements had deficiencies, the fine was disproportionate and reduced it by six times.

This dispute was far from easy for us. We would much prefer to avoid legal disputes altogether, especially with the state or regulatory authorities. In the financial sector, it’s common for companies to pay substantial fines without admitting their liability. This approach allows them to avoid lengthy and costly litigation while preserving their reputation. However, such settlements often leave the public uncertain about whether justice was truly served.

This is why we chose to challenge the Financial Supervision Authority’s decision in court. The court agreed with the Authority that we had violated advertising rules. This is painful to acknowledge. We admit that we wanted to do too much too fast. We had already changed our communication practices in 2023 to prevent similar mistakes in the future. However, the court, like many Tuleva members, found that the fine was disproportionate given the minor nature of our offence, and therefore significantly reduced its amount. The judgment, however, has not yet entered into force, as the Authority has appealed to the Supreme Court. (5)

We hope the judgment will help improve communication activities of all fund managers. Notably, the court emphasised that information about pension funds must be easily understandable to all savers. Financial service advertisements in general need to be clear to the average saver, but given that nearly everyone saves in pension funds, the threshold for simplicity is even higher. This principle aligns with our own tasks, set out in Tuleva’s articles of association, to make saving an activity that is easily understandable for everyone in Estonia.

Our dispute may have also contributed to the Ministry of Finance taking steps to simplify how pension fund information is presented. A recent analysis (in Estonian) proposes replacing the complex and formal key investor information document with a straightforward and universally understandable comparison table. More importantly, the Ministry intends to introduce a requirement for individuals to be able to view their personalised annualised rate of return in their internet bank. We have repeatedly highlighted that the current presentation of returns in internet banks is far from transparent (in Estonian).

Tuleva has a new Supervisory Council

Last year, we elected a new 10-member Supervisory Council for the Association. This is the third configuration of our Council. Of Tuleva’s founding members, Kristo Käärmann, Loit Linnupõld and Indrek Kasela will continue serving on the Council. In addition, the founders elected Priit Lepasepp, who previously served on the Association’s Management Board, to join the Council. Another member who will continue her role from the previous Council is Kristi Saare.

The other five members are newcomers to the Council. Kadri Lainas, Johanna Ambre, Riin Mäesalu, Kirti Rebane and Marit Finnie have all been Tuleva members for years and are actively saving their second and third pillar assets with us.

The main task of the Council is to ensure that Tuleva remains true to its mission: to help people build their future capital with confidence by putting money aside on a regular basis. The Council approves the key terms and conditions of our funds, including fees and investment strategy. What better way to ensure that our fund manager acts in the best interests of savers than to place oversight in the hands of a Council elected by the savers themselves?

You can find a summary of the work of the previous Council here (in Estonian).

Our financial results were strong

According to preliminary estimates, we earned approximately 466,000 euros in EBITDA last year. After accounting for depreciation of 54,000 euros, the remaining amount represents profit from our business activities, which is split into two parts: 155,000 euros as a membership bonus for Tuleva members and 257,000 euros as operating profit. Since Tuleva’s foundation, we’ve earned a total of 888,000 euros in EBITDA.

It’s no coincidence that last year’s EBITDA exceeds the combined EBITDA of all previous years. In 2022, in line with Tuleva’s new strategy, we decided to expand our team and invest heavily in growth. The investment made reduced our EBITDA in 2022 and 2023. While the success of growth investments is never guaranteed, the results from the past year confirm that the investment is beginning to pay off.

In addition to business profits, the owners of our membership capital also earn investment returns. Indeed, our capital is primarily invested in the units of our own pension funds, and their value increased by 1.5 million euros over the past year. Since 2016, the membership capital has earned a total of 3.7 million euros in investment returns.

Following the auditor’s advice, we made a retrospective adjustment to the 2023 reports by recognising part of the work contribution expense planned for 2024–2026 in the 2023 budget. This increased the 2023 work contribution expense by 105,000 euros. (6)

As in previous years, the reports will be prepared during the first quarter and then sent to all Tuleva members for approval at the general meeting. The annual report is currently undergoing audit.

Investments in 2025: a new savings product and optimised payouts

In 2025, we’ll continue investing in Tuleva’s growth. Alongside our regular work with the second and third pillars, we plan to launch two new projects. In the coming months, we intend to apply for an activity licence for an additional savings product, and establish a proper payouts system.

Let’s begin by outlining the first project. For most people, securing their future through the second and third pillars with tax relief is sufficient, but not for everyone. Every year, more individuals are taking full advantage of the third pillar. There are also many who are looking for reasonable options to invest in index funds through their company or even on behalf of a child.

While several companies now provide the option to invest in broad-based low-fee index funds, we consider the process too complicated. In most cases, these broad-based low-fee index funds are offered alongside dozens – if not hundreds – of less advantageous options. Too much choice can be overwhelming, so money often just sits on deposits.

Therefore, Tuleva members have repeatedly asked us when we’ll create an additional fund outside the pension system. For this, we require an additional activity license. At the end of last year, we began work on this project and started preparing an application for the necessary license. We will submit it to the Financial Supervision and Resolution Authority in the coming months. If everything goes as planned, we could have a new fund up and running by the end of the year.

Finally, let’s outline the second project. Until now, we have focused solely on saving and left the payouts for the future. After all, it’s logical – if nothing’s been saved, there’s little point in dedicating much time to considering payouts. Now, however, the time has come to turn our attention to them.

Most people withdraw their accumulated assets from the second and third pillars as a lump sum when they reach the age of 60–65 years, paying a 10% income tax on the amount accrued to the state. At the same time, many continue working and, in fact, have no immediate need to use their pension assets. How can we help people decide more wisely about when and how they use their savings? After all, the law doesn’t require withdrawal of funds upon reaching retirement age, and it also provides for the option to use the savings without paying income tax in the form of a funded pension, i.e., through monthly payments.

Currently, there are still relatively few people aged 60 and older among Tuleva savers, but it’s certain that their number will increase in the coming years. This is why we already developed the first version of a payout solution (in Estonian) last year. However, work on the payouts is still at an early stage. Just as we have observed and learned how people make decisions when they start saving, we now need to understand how they reach the decision on how to use their savings. Additionally, we need to help savers make more informed and profitable choices for themselves.

(1) We chose the threshold of 25,000 euros for the simple reason that this amount has some tangible impact at retirement. If you are 65 years old, have 25,000 euros in the second and third pillars, and decide to retire, you would receive a monthly payment of more than 100 euros from your pension funds. See the payout calculator (in Estonian) for details.

(2) This statement is based on several assumptions. We don’t really know how much money we will need in the future, and even if we did, it’s difficult to determine with sufficient certainty how much we should save for it. The Foresight Centre of the Riigikogu (Estonian Parliament) has estimated that to secure a reasonable income at retirement age, a person should save 15–20% of their income throughout their working life. However, only a small portion of the Estonian population is able to achieve such a savings rate (see, for example, the analysis of the sustainability of the pension system (in Estonian)).

(3) As an indicator of global market returns, I use our funds’ benchmark index MSCI ACWI, measured in euros. You can find a summary of the annual performance of this index here. For long-term historical returns on the stock markets, I rely on data from the Dimson, Marsh, and Staunton database, with their annual reviews available here.

(4) The fund managers’ reports will be published only in March–April. My assessments are based on previous years’ reports, which I have regularly summarised on the blog (in Estonian).

(5) At the beginning of February, the Supreme Court of Estonia announced that it would not proceed with the Financial Supervisory Authority’s appeal in our dispute. As a result, the Harju District Court’s decision came into force, reducing the fine imposed on Tuleva by six times.

(6) Our previous policy was to recognise the work contribution expense in the reports when the employee became entitled to it. Our contracts specify the total work contribution amount for three years and the timeline for entitlement. Usually, employees become entitled to the first portion after 12 months (if they leave earlier, they forfeit the contribution), with the remaining parts vested in subsequent years. The auditor recommended applying the IFRS standard, which requires most of the expense of a three-year contract to be provisioned in the first year.

At the beginning of the year, we appealed the Financial Supervision Authority’s decision to fine Tuleva 100,000 euros for shortcomings in our advertising. The court acknowledged deficiencies in the advertisements but concluded that Tuleva’s fault was minor. As a result, the fine was reduced to 17,500 euros.

Pension fund information must be understandable to everyone

During the dispute, the court conducted a thorough analysis of the requirements for pension fund advertisements. The court emphasized in its ruling that pension fund advertisements must be clear and understandable, even for those with limited financial literacy.

The court identified three shortcomings in our posts from July 2023.

First, financial service advertisements must include a call to review the terms and conditions of the service and consult with an expert. Pension fund advertisements must also specify where investors can access the prospectus and key information document. In some of our posts, this information was only visible after clicking the “Learn more” button. The court noted that this could have led some people to make hasty decisions about their pension fund without enough consideration. (1)

Secondly, the court found that some of our advertisements may have been misleading. For example, we used the phrase “The only honest statistics”. While some posts clarified this — highlighting that pension fund comparisons often distort performance figures, whereas Tuleva always presents accurate returns — others lacked this explanation. The court ruled that advertisements without this clarification may not have been clear to all consumers.

Finally, one of our posts included the phrase “Preserve your pension fund’s performance and choose a low-cost index fund”. Our aim was to explain that fees reduce pension fund returns and that lower-cost funds are a better choice for investors. However, the court found that some people might interpret this as a guaranteed return. (2)

Tuleva no longer publishes posts of this nature. Shortly after publishing these posts, we updated our communication guidelines to ensure compliance and make our messages clearer for everyone. We also stopped using external service providers for our advertisements to prevent potential misunderstandings. Today, all our communications are reviewed by multiple team members to ensure clarity and accuracy.

We take the court’s judgement seriously. Our communications must be understandable to everyone because the financial world can be complex, and people’s prior knowledge varies widely. Tuleva’s mission is to make pension saving simple and accessible for everyone. Moving forward, we will make our messages even clearer and more straightforward. We believe that true clarity doesn’t come from small-print warnings but from ensuring that the main message itself is simple and easy to understand.

1. I will save for another blog post the discussion on how small-print calls to review fund documents or consult experts actually do not protect people’s interests. After all, we know most fund documents are written for lawyers, and impartial experts are not readily available to most people.

Dear Tuleva pension savers and members,

If you have just one minute to read:

• In the first six months of the year, Tuleva pension savers contributed 53 million euros into the second and third pillars, which is a third more than in the same period last year. The number of people contributing to the third pillar increased by 25% compared to the previous year.
• Global stock markets rose by approximately 15% in the first half of 2024. We cannot predict the future performance of stock markets, but historically the best returns have been earned by investing regularly in diversified, low-cost index funds that hold shares in many global companies.
• Tuleva already has some 72,000 second or third pillar investors. The number of investors is gradually but steadily increasing.

Read more:

How low can fees go?

Low fees are one of the surest ways to increase the return on your pension assets. It makes perfect sense: the less you pay in fees to the fund manager, the more return you get. In Tuleva, pension savers can be sure that the more people there are who save together, the lower the fees will be.

We have to cover two types of costs from our fees. The rate of variable costs, such as the fees to the depositary bank, the guarantee fund fee and the registry fees paid to Pensionikeskus (the Pension Centre), is a fixed percentage of the assets in our funds.(1) With these fees, it’s simple: as soon as the rate is reduced, we can immediately reduce our fee. This is what we did at the end of last year, for example, when we managed to negotiate a lower fees that we pay to the depositary bank.

Fixed costs, such as salaries and costs related to office space, IT infrastructure, auditing, etc., need to be covered regardless of the size of our assets. A downturn in the market can quickly lead to a significant reduction in the value of the assets. On the other hand, if these costs are well under control, there is scope for a reduction in fees in the long term.

One thing you can be sure of when you save with Tuleva is that all our funds have low fees. In the second half of the year, together with the Supervisory Council, we’ll review the fees for our funds and decide whether we can reduce them further, given the rapid growth in assets.

The graph shows the average ongoing charges per fund manager, weighted by the volume of pension fund assets. Data as at 18 July 2024.

What most people can do immediately to reduce their fund fees is to simply move their second or third pillar assets from an old, high-fee bank fund to a low-fee index fund.

Growing share of index funds

As elsewhere in the world, the share of index funds is also on the rise in Estonia. Today, they already account for a quarter of the assets in the second pillar and for a third of the pension savers. Index funds are growing fast for two reasons. Firstly, for the fifth year in a row, young people entering the labour market are automatically allocated to an index fund with a high proportion of stocks. Secondly, every year a large number of people switch from a high-fee fund to an index fund.

This is a very positive trend. The popularity of index funds has forced all fund managers to include a low-fee index fund in their range, lowering the average fees of all fund managers.

As Tuleva pension savers, we can be proud to say that, thanks to all of us, Estonian pension savers have lower fees and more choice. At the same time, we still have a lot of work to do, as 75% of second pillar assets are still held in old, high-fee bank funds.

Strong growth in contributions

In the first six months of this year, those of us who save with Tuleva contributed 53 million euros to our second and third pillar accounts. This is one third more than in the same period last year.

In the first half of the year, more than 32,000 people made a contribution to our third pillar fund. This is 25% more than in the previous year. In addition, people who had already saved in our third pillar fund last year increased their contributions – by as much as 37% compared to the first six months of the last year.

The most reliable way to achieve your savings goal is to set up a standing order. At present, almost 19,000 people save automatically in our third pillar through a standing order. This is 30% more than a year earlier. If you also want to simplify the way you save, you can make a contribution to the third pillar here.

A new option to save even more tax-free is to increase the amount you contribute to the second pillar. Nearly 4,700 Tuleva pension savers have already increased their second pillar contribution to the maximum of 6% of gross salary. This is about one fifth of the total number of applications (around 38,000) made by people in Estonia to increase their contributions.

Interestingly, quite a significant proportion of those who have submitted the above application have their third pillar only in Tuleva, while their second pillar is elsewhere. You don’t even have to be a Tuleva pension saver to submit an application through our website. It’s easy and takes just a few minutes.

Another 760 people have raised their second pillar contribution to 4% in Tuleva. However, a large number of pension savers haven’t yet submitted an application. After all, the deadline is the end of November, and it’s only human to leave important things to the last minute. But it’s good to see that every time we send out a reminder email, more people submit the application. We’ll keep nudging you in the months ahead. (2)

The easiest way to save more: pay less in fees

We have more than 20,000 pension savers who contribute to our third pillar fund, while their second pillar savings are held elsewhere. Some of them are already saving in a low-fee index fund managed by a bank, but most are still paying into some old, high-fee pension funds. It would be very easy for them to increase their savings rate immediately: all they’d have to do is stop paying high fees to their current fund manager. For example, if you have accumulated 10,000 euros in your pension account, switching from a high-fee fund to a low-fee index fund will save you around 6 euros each month. If you have saved 20,000 euros, then you will save even more. This way you’ll increase your savings right away.

In the first half of the year, 1,182 of our third pillar savers took this simple step, withdrawing almost 12 million euros from high-fee funds. Together, they now save at least 10-12,000 euros more each month thanks to lower fees. Transferring your second pillar takes two minutes and costs nothing.

Stock markets continued to rise in the first half of the year

In the first six months of this year, global stock markets grew by 15% on average. The global market does not always move in a straight line upwards: just two years ago, for example, the year started with a similar decline. It’s not possible to predict the exact return on our assets over the long term. However, we can ensure that the returns on our assets are in line with the average returns on global equity markets.

By regularly investing a portion of our income each month in the shares of companies around the world, we are steadily increasing our stake in the drivers of the global economy. This has historically been the best way to ensure that our wealth grows in line with global growth and outpaces inflation. (3)

The graph shows the performance of the Tuleva World Stocks Pension Fund compared to the global stock market index (MSCI ACWI), the Estonian pension fund average (the Estonian Pension Index, EPI) and the inflation rate in Estonia. Sources: Pensionikeskus data as at 28 June 2024, MSCI and Eurostat.

Our third pillar fund is less than five years old. Like our second pillar stock fund, the Tuleva Third Pillar Pension Fund tracks the global stock market average.

The graph shows the performance of the Tuleva Third Pillar Pension Fund compared to the global stock market index (MSCI ACWI), the Estonian pension fund average (EPI) and the inflation rate in Estonia. Sources: Pensionikeskus data as at 28 June 2024, MSCI and Eurostat.

Global bond market returns and the returns of the Tuleva World Bonds Pension Fund were slightly negative in the first half of the year, as global bond yields rose somewhat compared to the beginning of the year. (4) Despite this small decline, a year and a half of higher interest income has slowly but steadily reduced the 15% decrease in the value of bonds in 2022. To date, the fall in the unit price of our bond fund has been reduced to 11% compared with early 2022. If interest rates remain at the same level, the interest income, after taxes and fund fees, will add 2-3% per year to the unit price of our fund.

The graph compares the performance of the Tuleva World Bonds Pension Fund with the performance of the global bond market index (50% Global Aggregate and 50% Euro Aggregate), the Estonian conservative pension fund average (Conservative Strategy Funds Index, EPI-10) and the inflation rate in Estonia. Sources: Pensionikeskus data as at 28 June 2024, Bloomberg and Eurostat.

Committed pension savers do not switch funds often

It’s important to make sure that you continue to save in both good times and bad. A committed saver won’t switch funds when a salesman in a shopping centre offers a deal, won’t stop contributing to the third pillar when the markets are falling and won’t withdraw from the second pillar before it’s time to retire. Life is full of temptations and it’s easy to find compelling reasons to stop saving. We are pleased that Tuleva’s pension savers are committed to securing their future financial well-being.

The graph shows the volume of second pillar assets transferred to other funds per fund manager as a percentage of the fund manager’s assets.

It’s no wonder, then, that our savers have more in their pension accounts than their peers. More information can be found in the comparison calculator (in Estonian).

A couple of months ago, we looked at the assets of our young (under 35) active savers and asked them whether their higher pension assets were simply due to higher wages or whether they had another secret trick. We found out that Tuleva’s savers also outperformed their peers with similar incomes, simply because they save more and their pension assets have earned higher returns.

Moderate but steady growth in new savers

Tuleva already has more than 70,000 second or third pillar investors, but most people in Estonia have never even heard of us. That’s why we continue to look for new ways to reach out to people whose friends are not yet saving in Tuleva. We also want to encourage those who have already shown interest to take the next step.

So far, we have used various platforms of Meta (especially Facebook) to distribute our blog posts for free or for a fee. Over the past year, we have also been experimenting with other channels to avoid becoming too dependent on one. For example, we signed an agreement with the business portal Delfi Ärileht to support its investor section Investeeri, launched an Instagram account and are trying out online advertising on the news portal Postimees. 

Every month, several hundred people take the first step: they either open their third pillar account with Tuleva, transfer their second pillar account to us or do both. Of course, we would like this number to be higher. After all, just under 6% of all second pillar investors in Estonia save with Tuleva. Despite the fact that one third of the total market has opted for the third pillar in Tuleva, the market for the third pillar itself is still in its infancy – just under one in six wage earners in Estonia made contributions into their third pillar last year.

However, we must be mindful that the cost of finding new customers is at our expense, as Tuleva pension savers. And it’s not good for people to make a decision they haven’t thought through properly because of advertising or aggressive sales tactics. That’s why our outreach is and will continue to be moderate. Satisfied savers are our best publicity. Indeed, it’s always good to hear that most of the new savers at Tuleva have joined us on the recommendation of a friend.

Very good financial results

A larger volume of assets also means more income for Tuleva. In the first six months, we earned nearly 1 million euros in management fees. After deducting variable costs, we had a gross margin of 0.8 million euros to cover our fixed costs. This is 66% more than in the first six months of the previous year.

In the first half of the year, our fixed costs increased due to salary costs, mainly in connection with the recruitment of new employees. We have managed with a very small team since the inception of Tuleva, but the growth in the number of pension savers and the volume of assets, as well as the increasing regulatory complexity of the financial sector, has also created the need for us to strengthen the team with full-time staff. Nevertheless, we remain a fund manager with the smallest team of 13 employees. As our income grew significantly faster than our expenses, we made a strong operating profit in the first half of the year.

As is always the case, the net profit is significantly affected by the revaluation of the Tuleva pension fund units that we own. This time, the increase in the unit price added a large proportion to the net profit, whereas sometimes a revaluation can reduce profits substantially. We don’t take into account changes in the price of fund units when assessing our performance. After all, since Tuleva’s inception, we have agreed with our members that our equity is invested in our pension fund units and that price movements are not under our control.

This report also excludes a portion of our operating expenses, which have historically been borne by the fund manager’s parent company, the commercial association Tulundusühistu Tuleva. It consists mainly of work contribution expense, where the association issues work contributions to acquire shares in the membership capital in return for work done for Tuleva. In the first half of the year, the association paid 46,640 euros towards these costs.

The table shows the main financial indicators for Tuleva Fondid AS.

Advocacy: the fine imposed by Finantsinspektsioon is still pending a court decision

At the end of last year, we were imposed a fine by Finantsinspektsioon (the Estonian financial supervision and crisis resolution authority) for a breach of the rules of information activities. Earlier this year, we decided to challenge the fine in court. At the time of writing this report, we have information that the court is expected to make a decision in September.

However, the legal dispute is only one part of the process of finding a solution to the problem. In the meantime, we have met with both Finantsinspektsioon and ministry representatives to discuss the issues of communicating about pension funds. We are still of the opinion that an honest discussion about pension funds should not be so complicated that it can only be held with the help of lawyers.

Improving pension payments

We accumulate assets in our pension accounts with the intention of using them one day. In the early days of Tuleva, we worked hard to get the state to remove unnecessary restrictions on the use of pension assets. Today, these restrictions have been lifted and almost 50,000 people in Estonia who have reached pre-retirement age in the last four years have been able to use their second pillar assets as they wish.

Deciding how to use pension assets is as important as deciding how to accumulate them, and a wide range of choices does not necessarily ensure the best outcome for the individual. Last year, savers of retirement age withdrew almost 70 million euros from their pension accounts as a lump sum, paying almost 7 million euros in income tax. In our view, this is an unnecessarily high cost for pension savers.

We’re pretty sure that most of the people didn’t take the money out to spend it immediately. They probably deposited the money in a bank or elsewhere, with plans to spend it in small amounts over many years. They took the money out all at once, instead of having a funded pension, just so that they could finally “hold it in their own hands”.

The challenge we face is how to help second and third pillar savers understand that they don’t have to transfer their pension assets to a bank account and pay income tax on them. After all, regular payments from the pension pillars are exempt from income tax. Over 19 years, a 65-year-old Estonian is likely to earn a fifth more or even twice as much from their pension pillars than they would by withdrawing it as a lump sum or even putting it in a bank deposit.

In June, we started developing a system for withdrawals from pension account and hope to release the first version to the public in the coming months. However, this is only the first stage of a longer process. If you or a member of your family, a colleague or an acquaintance is about to start drawing on their pension assets, please refer them to us. This is the quickest way to learn what is important for savers.

Happy saving!

Tõnu Pekk
Member of the Board of Tuleva Fondid AS and Fund Manager

You can find the Tuleva association, Tuleva Fondid AS, and Tuleva pension funds audited reports here.

(1) Because of the way pension funds are regulated, the management fees of our second pillar funds must cover both the deposit fee and the guarantee fund fee. In the third pillar, the deposit fee is paid directly from the fund and there is no guarantee fund fee. It makes no difference for the pension saver, however, as in both cases all costs are reflected in the fund’s total expense ratio. That’s why it’s always worth looking at a fund’s ongoing fees.

(2) In fact, you can also apply for an increase or a decrease in your contribution at any time after November. However, if you want your second pillar contribution to increase from the beginning of the next year, you’ll have to submit the application before the end of November. Applications submitted later will not take effect until early 2026.

(3) The view that long-term returns in global equity markets have consistently outperformed inflation is supported by the creators of one of the most comprehensive databases on equity markets today, Professor Dimson from Cambridge University, and Professor Marsh and Dr Staunton from London Business School. An annual summary of their database is available here.

(4) In other words, bonds are fixed-income securities whose price rises when interest rates fall and vice versa.

Dear Tuleva members and investors,

If you have 90 seconds:

The formula for successful saving is simple: start early, save as much as possible, and ensure your assets generate decent returns. We, Tuleva savers, made significant progress last year:

• We set aside 102 million euros for the future
  Together, we made contributions to our second and third pillars totaling this amount. More than half of it went into our third pillar fund, and our savers will now receive nearly 12 million euros in tax refunds from the state this spring.
• Our returns are not far behind the global market average
  Over the last five years, the unit price of the Tuleva World Stocks Pension Fund has grown by an average of 10.6% per year. We don’t pretend to predict the future and forecast what returns will be over the next 5 or 10 years. However, we know that the surest way to achieve good results is through low-cost investments in index funds.
• The more people save together, the lower the fees become
  The size of Tuleva pension funds has already reached 700 million euros, with 70 thousand savers. Thus, last year, we were able to reduce fees by another 0.02 percentage points.

This year, it’s even easier to save more. You simply need to submit a request to increase your second pillar contributions. It takes 2 minutes and for most people, it doesn’t even reduce net wages.

In more detail: 

When we founded Tuleva, we made some critical decisions. We wanted to offer our savers funds with low fees because low fees are the only proven way to increase long-term returns. We also wanted the low fees at Tuleva to reflect our low operating costs – they’re not just lower because we’re making up the difference with a more expensive product (1).

The investment business is a business of scale. By keeping costs under control, we can reduce fees as the volumes increase. And because we’ve increased our volumes – a trend we continued last year – we’ve been able to lower our fees consistently, too. Now, the savers in our pension funds pay an average of two to five times less than those in the banks’ managed funds.

It’s worth reiterating why we place so much emphasis on fees. Shouldn’t returns be the primary focus? No doubt, returns are number one. But while fund managers often imply that higher fees lead to better returns, the numbers tell a different story: the less you pay in fees, the better your chance of a good return (2).

Growth is the best measure for achieving our mission

Our mission is to help as many Estonians as possible accumulate sufficient capital to live life to the fullest in their later years. This makes increasing the volume of our assets doubly important. First, growth helps to lower fees. Second, the assets in our funds mainly come from our savers, and our growth mostly stems from their contributions. Therefore, the more assets in Tuleva funds, the more capital our savers accumulate. With this in mind, we’ve set the goal of increasing our assets to 2.5 billion euros by the end of 2027.

Our funds’ assets are currently growing at a rate of 40% per year. What does this mean? Last year, our savers made 102 million euros in regular contributions to the second and third pillars (83 million in 2022) and redirected 71 million euros from other funds (38 million in 2022). That makes for a total of 173 million euros or 40% of our assets at the beginning of 2023 – to reach our goal, we need to keep our annual growth rate above 35%.

To achieve growth, you need to invest

The financial world is complex and full of noise, making it easy for people to get overwhelmed and put off making important investment decisions – such as choosing a pension fund. 

When we started Tuleva, we quickly realized how important it is to talk about saving in a clear and straightforward manner, and so made this a principle in our articles of association. By providing information that’s easy to understand, we aim to make pension savings a transparent and common practice for all Estonians.

Over the years, we’ve invested significant time in our mission. We publish blog posts, write and appear in the media and campaign on social media. And these efforts aren’t just for show: the more energy we put into them, the faster our growth.

Market growth and state compensation boosted our assets

Contributions from our savers and redirected assets are not the only factors that influence the volume of our assets. Last year, for example, January’s state compensation boosted our second pillar assets by 25 million euros, while the growth of the world market (and consequently, the unit price of our funds) contributed an additional 92 million euros. However, as these elements are beyond our control, we don’t factor them into our growth rate metric. A year earlier, the same factors negatively impacted growth, with market decline reducing the volume of our assets by 57 million euros.

Very few people choose to leave Tuleva funds

In the past year, our assets decreased by 14 million euros (12 million euros in 2022) due to people withdrawing from the second or third pillar. In addition, investors transferred more than 12 million euros (9 million euros in 2022) to other pension funds.

Some people have questioned why we don’t include withdrawn or redirected assets in our growth rate calculation. Wouldn’t it be more accurate to look at the incoming money on a net basis, deducting outgoing money from the incoming one? Not in my opinion – and there are a couple of reasons for thinking this:

One, pension pillar funds are meant to be used. Some people start using them at retirement age, some earlier. But while opinions may differ on withdrawing from the second pillar before retirement age, our success isn’t measured by how little people use their savings.

Two, if investors leave to go to other funds (or “churn”), that’s a valuable indicator of quality, which shouldn’t be mixed up with other metrics. In my view, there’s no reason for an investor to transfer their second or third pillar to another pension fund – but if they do, that tells us that they are dissatisfied and that we’ve made mistakes somewhere in our onboarding process.

Our funds grow as the global market grows

Global markets performed well in 2023. The MSCI ACWI index increasing by 18% measured in euros – significantly up on the index’s average rate of annual growth of 12.5% over the last five years. The unit prices of Tuleva World Stocks Pension Fund and Tuleva Third Pillar Pension Fund increased by 19% over the year, while the five-year growth of our second pillar fund has been 10.6% per year. With the sale of the last bonds from the fund at the beginning of 2023, any lag behind the world market should now be equivalent to our fees.

While Tuleva Third Pillar Pension Fund has been operational for less than five years, it outperforms our second pillar fund by 0.7% per year based on the three-year average return. This is because the terms of the fund allowed us to switch to the maximum allocation of shares earlier.

Over the past five years, stock markets in developing countries have lagged behind those of developed countries. The MSCI Emerging Markets index has returned an average of 4.4% per year, while the developed countries index, MSCI World, has returned 13.6% per year. This has led to varying returns from Estonian index funds. The Swedbank 1990–99 index fund, which invests in developed countries, has performed the best, while the SEB index fund, tracking the world market as a whole, and Tuleva, comprising slightly over 10% shares of developing countries, have performed averagely. The LHV index fund, which invests significantly more in developing countries than the other funds, has fared the worst (3).

Does this mean that savers now need to carefully choose between index funds? I don’t think so. Anyone who invests in index funds has already made a wise choice and – thanks to lower fees – they have a great chance of achieving good long-term returns. Of course, I would prefer that everyone choose a Tuleva fund, but the banks’ index funds are perfectly respectable choices, too.

High interest rates mitigated bond investors’ losses

Few people have been unaffected by the rapid rise in interest rates over the past two years. While the increase in interest rates in 2022 certainly led to a challenging year for global bond markets, with the prices of previously low-yielding bonds falling, last year’s high interest rates resulted in bond investors earning higher interest income.

Last year, world bonds yielded a 4.6% return measured in euros. Nonetheless, the five-year average return on bonds remains negative, averaging -0.3% per year. The unit price of Tuleva World Bonds Pension Fund increased by 5.1% year-to-date, and the five-year return has been -1.2% annually.

ESG screening has not impacted performance

The past year was the first full year in which we applied ESG (Environmental, Social and Governance) screening to our investment portfolio. Back in 2021, we decided that our funds’ share portfolios can no longer include companies that don’t meet the essential criteria for sustainability. To make this change, we use leading BlackRock index funds that employ the ESG screen, excluding about 200 of the world’s 3,000 largest companies (about 5–6% of the market value).

We made a firm commitment that implementing our sustainability policy should not increase the current fees of our funds or alter our goal of achieving the average stock market return. Experience has shown that seemingly progressive or green financial products often serve as an excuse to charge higher fees, leading to poorer returns.

We continue to use the MSCI ACWI, which includes all the world’s largest listed companies, as the benchmark index for our funds. While the return of the portfolio applying the ESG screen was slightly (ca 1.5%) better than the regular return last year, the five-year average return differs only by a decimal point (+0.4% per year in favour of the portfolio with the ESG screen).

Our aim is to have determined savers

Today, most people in Estonia are saving too little money for their old age. In our estimation, fewer than 5,000 out of 70,000 Tuleva investors are saving enough. And when we look at Estonia as a whole, the picture is even less encouraging: only 100,000 people contribute to the third pillar, with an average contribution of less than 5% of their salary.

Our goal, then, is not just to increase the number of investors but to create more determined savers. A determined saver contributes to the second pillar and also saves at least 10% of their salary, or a maximum 6,000 euros per year, in our third pillar. In other words, determined savers are people who save 15% or more of their income.

While most pension savers have a long way to go before achieving an appropriate savings rate, we made progress in the past year:

• The number of savers in both pillars increased by 3,270 people to 19,851.
• Contributions to the third pillar increased by 28%, including payments by “old savers” (those who also made contributions in 2022) by 27%.Our benchmark for defining a determined saver is deliberately simplified. After all, everyone has their own idea of how much income they’ll need during retirement and how much they have saved.

Our benchmark for defining a determined saver is deliberately simplified. After all, everyone has their own idea of how much income they’ll need during retirement and how much they have saved.

It is easy to make a big leap in savings this year

2024 offers an excellent opportunity to take leaps in increasing your savings rate. You can now apply to allocate up to 6% of your gross salary to the second pillar from next year, compared to the current 2%. This is a tax-exempt contribution, automatically deducted from your net salary before income tax is applied.

What makes this an even more appealing decision is the income tax reform. For most people, this adjustment is not expected to reduce their net pay. And although income tax is set to rise from 1 January 2025, the tax-free minimum will also increase, along with the net salary for most wage earners. What could make more sense than directing this gain to the second pillar with just one click? Try out the calculations yourself.

One can now start saving in Tuleva Third Pillar through Coop Pank

After two years of negotiations, we’ve successfully begun collaborating with the Coop Pank team. Last autumn, we initiated the partnership, and just before Christmas, we went live. Now, in addition to starting a fixed-term deposit, Coop Pank clients can easily start saving in Tuleva Third Pillar through the savings menu in their bank’s mobile app, where they can jump over to our app to finalise their application with just a few clicks.

An unexpected expense affected our financial results

Our consolidated net earnings last year were 846,013 euros (in 2022, we made a loss of 771,632 euros). There are two parts to Tuleva’s financial results. The first is that our equity capital, which is largely invested in our pension funds, particularly the Tuleva World Stocks Pension Fund, earns global market returns. Last year, the value of fund units owned by Tuleva increased by nearly one million euros (in 2022, the value decreased by 0.8 million). Since Tuleva was founded, the value of fund units owned by Tuleva has increased by 2.1 million euros.

The second part is the operating earnings that Tuleva earns from managing the assets of our pension funds. We would have been very satisfied if we had finished the year at zero. Over the last two years, we’ve invested a lot in growing and strengthening the organization. We’re enhancing the product, expanding outreach efforts and using new channels to reach people – not to mention how we are making our back office more efficient and risk-proof.

Most of the results of last year’s work will translate into additional income this year, but the costs related to this work were already paid out as salaries or fees under service contracts, directly contributing to operating expenses last year. Only a fraction of these costs (totaling 75,000 euros in 2023) has been capitalized – mainly costs related to software development. We’ll be very pleased if, during this period of rapid growth, our expenses do not exceed our revenues, allowing us to break even. After all, these expenses will bring additional income for years and decades to come.

Unfortunately, the past year did bring one unexpected additional expense: the Estonian Financial Supervisory Authority fined us 100,000 euros for violating the advertising rules in our Meta campaign in July. While we’ve improved our operations to make sure there are no similar mistakes in the future, we believe the fine is disproportionate to the violation and are appealing the decision. Naturally, our aim is to reduce the fine, but we also hope to help bring more clarity to the field of pension fund marketing overall.

Of course, until the judgment is rendered, it is only right to fully reflect the received fine in the costs. But this is a fund manager’s expense and does not affect savers in our pension funds. Nor does it impact our growth, and we’ve already achieved a large business volume that enables us to cover the additional costs incurred at the expense of increased revenues.

It’s a good feeling to work at Tuleva. Our interests align with our savers’ interests, and we’re moving towards the same goal – securing a better future by setting aside some money every month without unnecessary effort. Although much work remains, I am pleased that together we have laid the foundation for a venture with both the will and the means to achieve this goal.

Wishing you all the best in your saving.

(1) For clarity: by “we”, I always mean Tuleva members and Tuleva Tulundusühistu and Tuleva Fondid AS jointly owned by us.

(2) A great deal of research has been conducted on the relationship between fees and returns. Most researchers have concluded that high fees inevitably lead to lower returns, as fund managers have no consistent ability to outperform the market average. Last year, for example, Triinu Tapver, who researched funds in our region (Central and Eastern Europe), received a research award from Eesti Pank (in Estonian). 

(3) All world market index data is sourced from the MSCI website. MSCI updates the data sheets of its key indices every month. It is best to search for “MSCI ACWI net eur”, which will return a pdf file with the results of the MSCI ACWI, MSCI Emerging Markets and MSCI World indices over the last ten years. The best way to see the comparison between ESG Screened indices and the regular index is to search for “MSCI ACWI ESG Screened”.

We use a portfolio of two broad-based indices as a reference index for the global bond market: 50% is Bloomberg Barclays Global Aggregate and 50% is Bloomberg Barclays Euro Aggregate.