31.10.2025
As many as 28% of young Estonians between the ages of 18 and 29 do not know in which II pillar fund they are saving for the future, according to the Norstat study commissioned by LHV.
According to Vahur Vallistu, Chairman of the Management Board of LHV Varahaldus, young people in Estonia are increasingly smarter in managing their financial affairs, but the II pillar still raises many questions. ‘Of course, young people don’t spend much time thinking about how to make the most of retirement – there’s still plenty of time. However, the II pillar is one of the best ways to increase your future security and make time work for you’, Vallistu said. Young people’s lower-than-average awareness of their II pillar fund choice suggests that the topic needs to be more transparent and comprehensible. ‘It’s important that every young person finds the most suitable solution for saving in the II pillar. This will keep you motivated over a long period of time and increase your sense of security throughout your life’, Vallistu said.
To create more clarity, LHV recently also changed the names of its II pillar funds – Julge, Ettevõtlik, Tasakaalukas, and Rahulik. ‘We realised that young people in particular need more confidence in their future saving, supported by a simpler and more informed choice’, Vallistu said. He stressed that the information consumption of young people is quite different, which is why the names of the funds must also convey their content and strategy quickly and accurately. ‘Figuratively speaking, young people should not have to navigate the pension fund landscape without a map and compass. Although the choice of the II pillar can be changed at any time, it is a weighty decision and the young person must be convinced that their money will be used to make investments at the level of risk that suits them’, Vallistu said.
At the same time, 27% of 18–29-year-olds surveyed said they did not have a II pillar, although it is mandatory for all young people to join it. There is still a myth that if a choice regarding the II pillar has not been made, then no money will accumulate there. ‘In fact, all young people who have reached the age of 18 and have started working, but have not yet submitted their II pillar choice application by the time they receive their first salary payment, will be awarded a pension fund by lot," Vallistu explained. He recently made a presentation to first-year students and asked everyone who had been to work to raise their hands. Hands went up throughout the auditorium. ‘Then I asked those who are saving in the II pillar to raise their hands, and about one tenth of the hands remained up. This clearly shows that it is important to raise awareness’, said Vallistu.
Every young person who cares about their future should be interested in where their II pillar money goes. However, according to Vallistu, the number of lottery customers – i.e. young people who have not submitted their own II pillar choice application – over the years reflects the fact that a significant number of people are letting the state make the choice for them. ‘Unfortunately, there are many examples where this does not coincide at all with a person’s own risk appetite or with their investment strategy. In addition, historically many young people have been drawn to save in a conservative II pillar fund, the expected rate of return of which is below the long-term market average. If we do not pay attention to our choice of II pillar, this could mean tens of thousands of euros in lost revenue for the future’, Vallistu described.
In addition to the solutions mediated by management companies, you can also invest your II pillar money yourself. This is done through the pension investment account, i.e. the PIK, which is part of the II pillar system. ‘For example, in order to invest in an index fund, you do not really need a fund manager, because it is a 100% automated process’, Vallistu disclosed. He pointed out that the PIK enables one to create a portfolio that is very similar to the popular index funds offered on the Estonian pension market and also similar to the lifecycle funds for younger people in terms of equity risk. However, compared to the most favourable pension fund in Estonia at the moment, the II pillar investor can enjoy fees that are almost twice as low in LHV’s PIK.
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