In 2019, Tuleva members created a Pillar III fund for themselves in which high fees don’t eat up the nice gain that comes from the tax incentive. As in our Pillar II funds, you don’t have to be a member of the cooperative to save with us in Pillar III.
Pillars II and III are the foundation of your investment portfolio
A simple rule worth following for both beginners and advanced investors: first put the state-supported, tax-advantaged pension pillars to work for you. There is no point in looking for other investment opportunities until you have taken full advantage of the Pillar II and Pillar III tax incentive. The tax incentive gives you an edge over every other investment option and leverages the growth of your assets.
Pillar III is the cornerstone of saving
There is no point in looking for other investment opportunities until you have taken full advantage of the Pillar III tax incentive. Why?
1. There are not many investments that guarantee an immediate 22% gain
Anyone can transfer up to 15% of their gross income (but not more than €6,000 a year) to Pillar III free of income tax. If you have already paid the tax, you will get it back after filing your income tax return. For example, if you invest €2,000, the state will give you €440 back.
2. You can withdraw the money at any time
You can withdraw money from Pillar III whenever you want. You can also bequeath the units of a Pillar III fund. Withdrawals are taxed as follows (more here):
- If you started saving in Pillar III before 2021 and wait to withdraw the money until at least your 55th birthday, the favourable income tax rate of only 10% applies.
- If you start saving in 2021 (or later), you can withdraw the money at the favourable 10% tax rate from pre-retirement age (currently 60).
- If you withdraw the money earlier, you will have to pay 22% income tax on all the assets saved in Pillar III. Even so, this is far from cancelling out the effect of the tax incentive. In effect, you have received an interest-free leverage loan from the state.
As usual with investing: don’t put money you will need in the near future into stocks. Pillar III is suitable for saving with a longer time horizon.
3. No need to pay for a securities account
There is no need to spend time or money opening a new bank account or paying a fee for buying and holding fund units. Everyone in Estonia already has a free account in the national pension register, the same one where your Pillar II assets accumulate.
Why did Tuleva create its own fund?
As we said, Pillar III is the best tool for long-term saving, thanks to the tax incentive. In the hands of bank intermediaries, this advantage has tended to shrink. First, the fees of most Pillar III funds are even higher than in Pillar II. Second, the investment decisions of bank fund managers have so far not brought success to savers.
When you save with Tuleva, you can be sure that your fund’s fees are among the lowest and that they will keep going down in the future.
When we launched our joint Pillar III fund, we did two things differently from most bank funds.
- The total cost of the Tuleva fund is almost three times lower than that of the banks’ large Pillar III funds: 0.28% a year. By the way, our fund may not be the cheapest at every moment, because we don’t subsidise the costs of any fund at the expense of other savers. But when you save with Tuleva, you can be sure that your fund’s fees are among the lowest and that they will keep going down in the future. (1)
- We don’t speculate on market fluctuations, but calmly set aside a small part of our salaries every month and buy more shares of the world’s largest companies. Over time, our holdings in the companies that drive the world economy grow, and the value of our assets grows as those companies grow and pay dividends.
As in Pillar II, these two things give us pretty good assurance that the growth of our assets will never lag far behind the growth of world stock markets. And as in Pillar II, the long-term return of no old bank fund has so far come close to the global stock market average.
As with our Pillar II funds, one more thing is quite certain: the value of our assets will not rise in an unbroken upward line. When the world economy is in a downturn and stock prices fall, the market value of companies falls, and with it the value of their owners’ assets, ours included. This is not pleasant, but the history of the markets shows that in the long run we earn more by calmly staying the course than by timing purchases and sales and trying to outwit the market.
Where do we invest our assets?
As in Tuleva’s Pillar II stock fund, with every euro invested in the Tuleva III Pillar Pension Fund we buy shares in nearly 2,500 of the world’s largest listed companies, all of those included in the MSCI All Country World (MSCI ACWI) index.
As a reminder, an index is nothing but a list. The MSCI ACWI index is a list of the world’s largest listed companies ranked by market value. Each company’s weight in the index is its market value divided by the total market value of all the companies. (The shares of more than 30,000 companies are traded on the world’s stock exchanges. The MSCI ACWI draws the line at the 3,000 largest companies for practical reasons, as the weight of the rest in the portfolio would be negligible.)
In September 2022, we introduced one addition: we exclude from the list of the world’s 3,000 largest companies a couple of hundred companies that do not meet the generally accepted criteria for sustainable and responsible investing (ESG). This does not change the main goal of our portfolio, which is to achieve the average return of the world market, but it lets us take a small step towards taking into account and reducing the negative impact our investments have on the world’s natural and social environment (2).
We don’t buy shares in these companies one by one, but invest in them through several global index funds. It’s simply cheaper. Thanks to their large volumes, buying shares costs the world’s leading index funds close to nothing. If we had to buy shares in each company separately every month, it would be terribly expensive for us.
A closer look: what exactly is in our portfolio?
We divide every euro that comes into the Tuleva III Pillar Pension Fund as follows:
First, nearly 88% of the money goes into index funds that invest in the shares of developed countries. These funds are:
- Xtrackers MSCI World Screened UCITS ETF 1C
- Amundi MSCI World Screened UCITS ETF
- iShares Developed World ESG Screened Index Fund
Why do we buy the same developed-country shares through several funds instead of simply sending, say, 88% of the money to the first one? The Investment Funds Act allows a maximum of 30% of assets to be invested in one fund. That is why we use three funds that track the developed-market stock index MSCI World. You can understand the legislator’s wish to make pension funds diversify their risks, although, frankly, this restriction is quite unnecessary for a global index fund.
About 12% of the money goes into the iShares Emerging Market ESG Screened Equity Index Fund.
The vast majority of companies in the MSCI ACWI index are in the developed world, and just over a tenth are in emerging markets. For some reason, funds that cover the entire MSCI ACWI index have a higher management fee than a portfolio made up of separate developed and emerging market funds. That is the simple reason why we use separate funds to buy shares in emerging market companies.
So we direct all the money coming into the fund to developed and emerging market funds. In addition, we keep in mind the requirement that at the start of each month the fund must have a cash buffer of at least €500,000 to cover possible redemptions.
The fund’s ongoing charges are 0.28% a year
The ongoing charges of the Tuleva III Pillar Pension Fund, i.e. all the costs that come out of the investor’s pocket, add up to 0.28% a year. These include our fund’s management fee, the custodian fee and the fees of the funds in our portfolio.
In the Tuleva III Pillar Pension Fund, no one has to pay a fee to start saving or to withdraw money. The state abolished entry and exit fees for Pillar II pension funds several years ago on Tuleva’s proposal. In Pillar III, however, most bank pension funds still take a full 1% of the investor’s assets as an “exit fee” when money is withdrawn. (1)
What should you do if you have already saved in a bank fund? When you switch funds, some bank funds may charge 1% of your savings as a fee. Even so, it still makes sense to leave old, high-fee funds: within less than a year or two, you would pay more in fees there than at Tuleva, even taking the switching fee into account.
(1) You can compare the ongoing charges of all pension funds on the Pensionikeskus website (in Estonian). For insurance products, you need to look carefully for the “Key Information Document”.
(2) Read more about how Tuleva applies its sustainability principles.
Overview of Tuleva’s current model portfolios (in Estonian).
PS! This article was first written in October 2019 and last updated on 7 October 2026.
