Survey: People lack faith in an adequate state pension

TALLINN - As many as 74 percent of people in Estonia do not believe they will receive a state pension sufficient for a normal standard of living, a Norstat survey commissioned by LHV reveals.

Furthermore, for half of Estonia's residents, an adequate retirement income would be twice the current average pension.

Faith in receiving a state pension that allows for a normal standard of living is lowest among those aged 30-39. A striking 81 percent of people in this age group do not consider it likely. The corresponding figure is 68 percent for the 18-29 age group, 77 percent for those aged 40-49, 70 percent for the 50-59 age group, and 71 percent for those aged 60-75.

According to Vahur Vallistu, chairman of the management board of LHV Asset Management, the results reflect higher expectations for quality of life throughout the entire lifespan than before. "An increasing number of people in Estonia know that relying solely on the state pension is likely not the best strategy. A financial buffer for a dignified old age is built over a long period, and smart savers first take advantage of the tax-benefited opportunities of the second and third pillars," he said.

Vallistu added that it is also worth considering increasing personal contributions to the second pillar to four or six percent of one's gross salary to maximize the results of decades-long saving. If possible, one should also consider making regular contributions to the third pillar. "It is consistent and automated investment solutions that most effectively support the growth of wealth in the long term," Vallistu is convinced.

The survey revealed that 48 percent of people in Estonia consider a pension of over 1,500 euros per month necessary for a normal standard of living. A pension in the range of 1,001-1,500 euros is considered as such by 42 percent of respondents. The actual average pension in Estonia is currently 860 euros.

In Vallistu's view, these numbers clearly illustrate the gap between people's expectations and reality. The income of Estonian residents experiences one of the largest drops in the European Union after retirement. While the average pension in the EU constitutes nearly 70 percent of a person's previous income, in Estonia it is about 40 percent.

Vallistu pointed out that, primarily due to the demographic situation, the gap between the average salary and the state pension will only widen. Therefore, it is important to save additionally to the first, or state, pension pillar. "Saving in the second pillar, increasing personal contributions, and investing in the third pillar form a good foundation that allows one to face the future with more confidence," he said.

To start receiving more money in the second pillar monthly as early as next year, an application to increase contributions must be submitted before November 30. To date, more than 123,000 second-pillar savers have already submitted the relevant application. For contributions made to the third pillar by the end of December, a tax refund can be received next year on an amount up to 15 percent of a person's gross income, but not more than 6,000 euros in one year.

The survey was conducted this September by the research firm Norstat. Across Estonia, 1,000 people aged 18-74 were surveyed.