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Disbursements

The method of payment of pension funds depends on how old you are and how you want to use the money you have saved. When you reach retirement age, a number of disbursement methods are added. If you wish to, you can combine options.

Payments to persons of retirement age

The retirement age is considered to be the pensionable age or your pensionable age minus five years.

1. Fixed-term pension from II pillar

Remember!
The longer the period, the lower the disbursements.


There are two ways of choosing the period for receiving your pension

  1. The recommended duration or a time longer than that, calculated based on your age and the average number of years you have lived. You do not have to pay income tax on the disbursements.
  2. Optionally, a shorter period than recommended. You will have to pay 10% income tax on your disbursements.
Three ways to pay a fixed-term pension from the II pillar
  • Payments will be made to you from the pension fund for as long as your pension account has funds in it.
  • All money collected in the pension fund belongs to you and can be inherited in the event of your death.
  • Pension funds continue to earn a return even while disbursements are being made.

How much will I pay in income tax?

0% or 10%.

The period of receiving a fund pension can be shorter or longer than your life expectancy. If the payout period is at least as long as your life expectancy, you will not have to pay income tax on your pension.


Where can I apply?

To obtain a fund pension, submit an application at a bank branch or online at Pensionikeskus.ee.

In your application, state how often and for how long you want to receive pension payments. You can choose the period from the options described above.

  • You enter into a fixed-term insurance contract with an insurance company, whereby you specify a period for making pension payments.
  • In order for the insurance company to be able to start making pension payments to you, you will need to transfer the money collected in your II pillar to the insurance company.

If you wish, you can combine payment methods. For example, you can leave part of the money collected by the pension fund in the pension fund to earn a return and enter into a contract with the insurance company for your remaining pension funds. You can also withdraw part of the collected money as a one-off payment, such an opportunity will open in 2022.


How much will I pay in income tax?

0% or 10%.

Entering into a long fixed-term contract, you will not incur any income tax liability. In the case of the combined solution, the income tax rate is 10%.


Where can I apply?

Apply to the insurance company. The following companies enter into fixed-term pension contracts:

Compensa Life Vienna Insurance Group SE

If you wish to obtain all of the pension funds collected in your II pillar at once, you can withdraw the money at the bank of your choosing. Note that you will have to pay 10% income tax on the amount, regardless of whether you have already reached (pre‑)pensionable age.


Bear in mind

Currently, a person of retirement age can only withdraw the entire amount of their II pillar pension money at once. From 1 January 2022, it will be possible to withdraw money in instalments.


How much will I pay in income tax?

10%.


Where can I apply?

On the website of Pensionikeskus.ee or at a bank branch.

Fee for submission of application.

2. Lifetime pension

Enter into an agreement with a life insurance company to receive payments. In doing this, you make money that has accumulated in your pension fund available to the company.

The company will start paying you a pension regularly and will do so for the rest of your life. Insurance companies estimate the length of the retirement age and calculate the amount of the payments that will be made to you based on this. If you live healthily and reach old age, the insurance company will pay out the pension in a larger amount than the amount that you had accumulated in your II pillar fund. Otherwise, part of the money will go to the insurance company and the unused funds will then be used to make disbursements to other, longer-lived customers of the insurance company.


How much will I pay in income tax?

0%.


Where can I apply?

Apply to the insurance company. Pension contracts are entered into by the following insurance companies:

Compensa Life Vienna Insurance Group SE

You can enter into a pension contract with a guarantee period. In the event of the death of the person receiving the pension, the insurance company will then continue to make payments to the person named in the contract (the beneficiary) until the end of the guarantee period.

Disbursements to a person of working age

This option is intended for people who have a clear plan on how to cope financially during their retirement and know how to raise money independently to this end.

Only make decisions that directly affect your future after you have thoroughly considered all of the options. There is plenty of time to do this.


If you withdraw the money collected in your II pillar before reaching pensionable age

  • you have to withdraw the entire amount at once; and
  • you will not be able to start saving money in the II pillar again until 10 years has passed.

How much will I pay in income tax?

20%.


Where can I apply?

On the website of Pensionikeskus.ee or at a bank branch.

Fee for submission of application.

III pillar pension disbursements

You can use the money collected in the III pillar of the pension system at a time convenient to you, as soon as you need it. There are many options for making disbursements – you can choose anything from lump-sum payments to receiving a lifetime pension.

As in the case of the II pension pillar, the state favours the use of the money saved in the III pillar only during your retirement and over the longer term.

You can use the money collected in the III pillar of the pension system at a time convenient to you, as soon as you need it. There are many options for making disbursements – you can choose anything from lump-sum payments to receiving a lifetime pension.

As such, from the age of 55, you pay less income tax on III pillar disbursements if:

  • at least five years has elapsed since you entered into your savings contract or initially acquired the units in your pension fund; and
  • you started collecting the funds before 2021.

NB! If you started collecting in 2021 or later

If you started collecting in 2021 or later, III pillar payments will have a more favourable income tax rate if you have reached retirement age (pensionable age minus five years).


Incapacity for work

Regardless of age, the tax benefits also apply to those who have no work ability or who are permanently incapacitated for work.

Two options for receiving a pension from the III pillar

In order to obtain payments on the basis of the amount collected in your pension insurance with guaranteed interest or with an investment risk, enter into a contract with an insurance company. Based on this, you will receive lifetime pension payments. In addition, you can choose a guarantee period that will ensure payment to successors during the selected period after your death.


How much will I pay in income tax?

  • If you have a contract with an insurance company and receive regular pension payments from the time of reaching retirement age until the end of your life, the disbursements are exempt from income tax.

Where can I apply?

  • Apply to the insurance company.

You can make disbursements from the III pillar pension fund upon the redemption of units for as long as there are funds in your pension account. If you receive payments from the pension fund in instalments, the assets in your fund will continue to grow by the amount of the return on your investments.


How much will I pay in income tax?

  • After reaching the age of 55 (if you started making III pillar contributions before 2021), but not until five years has elapsed since the initial investment was made, the rate of income tax is 10%.
  • If you have joined the III pillar before 2021 and you want to take out what you have collected before the age of 55, the income tax is 20%. Those who have joined the III pillar from 2021 can withdraw money at a more favorable income tax rate (10%) if there is less than 5 years until retirement age.

Where can I apply?

You can submit a payment application on the LHV pension website, via the mobile app Minu Pension, in a bank branch of your choosing or in the ‘My account’ section of the Pension Centre.

  • You can indicate your desire to sell several different funds in the one application.
  • When selling units of several pension funds at the same time, take into account that the amount will be transferred to you once all of the sales in the application have been made and the income tax calculation has been performed.

Inheritance

Successors can choose whether to withdraw the accumulated money at once or to inherit the fund units.

Depending on the age of the successor, income tax must be paid at the rate of either 20% or 10%. Upon the inheritance of fund units, the units obtained via inheritance are transferred to the pension account(s) of the successor(s) and a more favourable income tax rate (10% or 0%) may also be applied when they reach retirement age.


How much do you pay income tax on the realization of the inherited estate?

  • 0%, if the estate was transferred as units to the heir's pension account, the heir is of retirement age and paid distribution on the basis of the average number of years left to live.

  • 10%, if the estate was transferred in units to the heir's pension account, the heir is of retirement age and a lump sum is to be withdrawn.

  • 20% if the estate is to be sold at the time of the succession and the units from the personal pension account are not transferred.


Where can I apply?

The successor must first consult a notary. If a notarial inheritance certificate is available, the successor must submit an application for the inheritance of units to a suitable bank branch. If there are several successors, they must all come to the bank branch together.

Fee for submission of application

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