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I follow the principle of Jack Bogle, the founder of Vanguard index funds: keep the investment in a low-cost fund and “don’t peek” – keep the end goal in sight and don’t spend time or money worrying about small fluctuations. I waited for a long time for someone to set up this kind of fund in Estonia. We finally had to take matters into our own hands.
Tõnu has been working in the investment field for over 20 years. Before founding Tuleva, he headed an investment company he part-owned, Karu Capital. Before that, Tõnu ran Eastern European financial sector development projects at the European Bank for Reconstruction and Development and worked as head of investment banking at Hansabank. He holds a master’s degree from London Business School-and a bachelor’s degree from the University of Tartu.
We in Tuleva believe in passive investing. This means you just spread your money among the largest companies’ shares and government bonds so that risks are well diversified. Then you just need patience in order to keep on the same track and to not let bank tellers scare you or salesmen to deceive you. The funds that invest passively are called index funds.
This used to be a radical idea that became lifetime work for many independently-thinking finance experts: for example Burton Malkiel, Jack Bogle and Nobel prize winner William Sharpe. Today, academic research and statistics have proven that this strategy works. That is why most people today choose a passive investment strategy.
Yes. Your money is protected in addition to Tuleva’s own internal rules and procedures by these three pillars:
Financial Inspection has issued Tuleva fund manager a license and is overseeing that our activities comply with its rules.
Swedbank is the depositary bank of Tuleva pension funds. Depositary bank confirms every transaction made with the fund`s assets. Exactly the same way as with the bank`s own funds.
State guarantee fund protects all pension fund investors against the worst, in case the fund manager’s fault has caused damage to the fund.
In case you have more than 10 years to pension age, then we recommend to follow these two principles when saving for pension:
If you have less than 10 years until retirement, then it makes sense to consider conservative funds. Even though such funds are expected to return less, the value of their shares also fluctuates less.
If you are younger than 55, then Tuleva World Stocks Pension Fund suits you.
If you are over 55, then Tuleva World Bonds Pension Fund might suit you better.
No. This is not a good idea. This question has been analysed quite thoroughly in the world and the conclusion is: those people who try to time the market tend to buy when markets are at their peak and sell when at the bottom.
Many investors attempt to predict market movements but most often they do not succeed, even professional investors. This is one reason why Estonian pension funds have significantly underperformed world market average returns.
Remember that a market decline is not necessarily bad news for you. Most of us will be buyers of pension fund units for many years to come. A fixed amount of your salary goes to the pension fund every month and when the market is down, you will get more units for the same amount of money. So when the markets start to rise again, you will have more units that grow in value. This is called dollar-cost averaging. This works for you only in case you do not jump in and out of the funds, attempting to “step on the gas” or “decelerator” all the time.
Learn the basic facts of long-term saving and decide, what is you strategy. You should change your pension fund when it turns out that your pension fund’s strategy is not aligned with your own saving principles. We (and most expects, like investment guru Warren Buffett) recommend that you follow two main rules:
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.
All Estonian pension funds’ risks are well diversified, that is required by law. A pension saver does not have to manage their risks by spreading money among many funds. In addition, a pension saver does not bear any business risk of the fund manager. That is why spreading your money among many funds does not reduce your risk.
The only way to reduce your risk is to put some part of the money into a conservative strategy fund e.g Tuleva World Bonds Pension Fund or Swedbank K1.
This could be a sensible choice if you have only a few years until retirement. It could also make sense if you are very sensitive to risks and short-term fluctuations make you really suffer. But you need to understand that there are no risk free returns – if you avoid risk, then you get no or very little return.
You can compare funds’ results on the Pensionikeskus website – you don’t have to invest into many funds to do that.
If you choose Tuleva’s pension funds you will become Tuleva’s client. If you also become a member of Tuleva, you will become a co-owner of Tuleva. Tuleva is a commercial association, which is owned by Tuleva members. We started Tuleva Fondid AS, which manages Tuleva pension funds. All Estonian people can become clients of Tuleva pension funds, you do not have to be a member to do so.
To become a client of Tuleva’s pension funds, you do not have to pay anything – you will instead instantly start to save money due to low management fees. It only takes 5 minutes to switch funds in your internet bank.
To become a member of Tuleva, you have to pay a one time membership fee (100 euros). Every member has paid a membership fee – this is every owner’s contribution to help develop our jointly owned association. The membership fee is one time only – there are no additional fees later on.
The overarching idea of Tuleva is to bring people together to save money for their future, leaving out as many middlemen and unnecessary fees as possible. The more members there are, the cheaper it will be for us all to invest together using modern technological tools.
1. By becoming a member you help fill our goals
Firstly, we plan to create voluntary savings products and other investment instruments to save money for the future.
Secondly, we will keep on fighting to make the Estonian pension system better for the people of Estonia, not just the banks or insurance companies. We will work together with the Ministry of Finance and citizen initiative project “Uue Eakuse Rahvakogu” helping to create better laws.
2. Members earn a profit
Every year we calculate a membership bonus for all members who have transferred their second pillar funds to Tuleva pension funds. The bonus will be transferred to every member’s personal capital account at Tuleva. This will increase their share in Tuleva’s capital and this share will earn an additional return. If Tuleva gets bigger, and the funds start to manage more money and we create more investment products, the association will earn a profit, which will be divided up between members based on predetermined rules. As always, the size of the profit depends on how well we do as a business. The founders of Tuleva are more than convinced that the one time fee of 100 euros to join will be more than compensated in future returns, but we are of course not making any promises.
Yes. If you haven’t decided today if you want to become a member of Tuleva, then you can just transfer your pension to Tuleva pension fund. This doesn’t cost anything and takes less than 5 minutes in your internet bank. If you wish, you can become a member later. If not, there is no obligation. (The joining fee will increase in the future but we will let our pension fund clients know well in advance).
No. If you haven’t changes your pension fund in your internet bank, you can do so immediately after joining Tuleva through our web app using your ID card or Mobile ID. Once you have made up your mind, it takes only 5 minutes of your time.
Answers to your questions regarding Tuleva association can be found here.
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.
If you know that income is still coming to your account this year, add it yourself.
Please note that all income that reaches your account this year will be included in the calculation for this year (if the December salary is received in January, it will be included in the next year’s income calculation).
You can also add income that you plan to declare in the income tax return this year: rental income, interest paid by crowdfunding portals, income from the transfer of securities or other property.
Don’t worry if you don’t know the exact amount of your annual gross income today. Calculate the approximate amount and then find the optimal third pillar money placement with the calculator. If the actual annual income turns out to be higher than expected, your contribution will simply be slightly below the income tax allowance limit. Nothing terrible will happen even if you put a little more than the tax credit limit in the third pillar. The law does not prohibit it – if you exceed the limit, you simply cannot get the income tax back.