Pension reform split society over retirement saving

About one-third of Estonia’s second-pillar pension account holders have withdrawn their money, ERR reports. Financial behaviour researcher Heidi Reinson says both the decision to leave and the decision to stay may have been emotional rather than carefully considered, while the reform’s true winners and losers will emerge only in 20 to 30 years.

Following Estonia’s pension reform, one-fifth of second-pillar account holders withdrew their money in the first wave in 2021. That share has since risen to one-third.

“The reform’s moment of truth will come in a couple of decades, when the generation that has had the opportunity to save in the pillar throughout its working life retires. Then a contrast will emerge between those who have savings and those who do not,” said Reinson, a senior specialist at the University of Tartu’s financial behaviour research unit.

Five years after the reform, Reinson says it is possible to assess its effects. She has examined the reform’s broader impact on society, the demographic profile of those who left, and the reasons people gave for leaving or staying.

Whose views carry weight?

Most people who withdrew their second-pillar savings made the decision during the first wave. Reinson said that wave differed from later withdrawals.

“There was certainly distrust, as well as a sense of political protest. People who did not trust the pension system, the state or banks made a principled decision: even if they did not directly need the money, they withdrew it because it seemed like the right thing to do,” she said.

Reinson said the first wave appeared to be more psychological, while subsequent withdrawals were more economic decisions.

At the time, Reinson worked at Kantar Emor and studied whom people trusted with their financial decisions. Two names frequently mentioned spontaneously were Indrek Neivelt and Kristi Saare.

“Because pensions are a complicated subject, we rely heavily on the opinions of opinion leaders or people close to us,” Reinson said.

Society was, figuratively speaking, divided into two camps. Supporters of one opinion leader considered leaving the pension pillar the right choice, while supporters of the other did not.

People have three so-called windows each year in which they can withdraw their money, and households have chosen to do so in every wave. However, all later waves have been smaller, and the decisions more carefully considered.

Those who left knew what they were doing

Reinson also mapped the demographic profile of a typical person who left during the first wave. She found that people whose mother tongue was not Estonian were more likely to leave, as were people repaying quick loans and members of large families. People with higher education were more likely to keep their second-pillar savings.