Frequently asked questions


Why should I start saving in a third pillar fund? What are the advantages of the third pillar over other investment products?

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Money can be withdrawn from the third pillar at any time, and income tax must be paid on withdrawal.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.


How are payments made into the third pillar?

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).

Here you will find a guide and information on how to make contributions.


How does the tax benefit on the third pillar contributions work?

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.


How much money should be invested in the third pillar?

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.


How often should I make payments into the third pillar?

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.


I transferred the money yesterday, but I can´t see it on my pension account. Why?

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.


I would like to increase my contribution to the third pillar. How can I do that?

Log in to your internet bank and make a payment or change amount on your standing order. 

Third pillar contribution info


If I start saving in the third pillar only today, when will I get my income tax refund?

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.


If I do not work in Estonia, will I get an income tax refund on III pillar contributions?

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.


I am over 50, is it a good idea to start saving in the third pillar?

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.

Read more here.

 


Can I make contributions to a family member’s third pillar?

Yes, you can, but keep in mind that income tax is calculated for the pension account holder.


What is the expected return of the Tuleva II Pillar Pension Fund?

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.


Is it a good idea to move money from the second to the third pillar?

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.

Read more: https://tuleva.ee/en/recommendations/tax-incentive/


I applied to exchange second pillar units, but my account now shows that my second pillar application is pending. What else should I do?

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).


How can I protect my money against an economic crisis or a stock market collapse?

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.”

Why?

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.


Why should I join the Tuleva Association?

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.

https://tuleva.ee/en/mutual-company/#tuleva-story


I paid 125 euros, but it is not reflected on my membership capital statement. Why is that?

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.


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