Funded Pension Payments in Estonia

The mandatory funded pension (second pillar pension) in Estonia is an important part of the national pension system. It is designed to ensure future generations have a stable financial position after retirement. The system requires annual mandatory payments based on the individual circumstances of the taxpayer.

This article explains in detail the key aspects of the second pillar pension system. It also examines the payment calculation procedure and highlights important changes effective January 1, 2025.

Who is required to make funded pension payments?

Any sole proprietor (hereinafter referred to as a SPE) who has joined the mandatory funded pension is required to make the corresponding payment. The payment is made annually, once a year. It is based on the business income declared for the previous tax period.

Calculation and Deadlines for Funded Pension Payments

The payment amount is calculated by the Tax and Customs Board. It is based on the entrepreneur’s income declarations. The final payment amount is sent to the entrepreneur no later than 30 days before the established payment deadline. This means no later than October 1. The amount to be paid is also reflected in the Form E tax return.

The individual entrepreneur is required to transfer the specified amount to the tax authority account no later than the established date—October 1. If there is no taxable income, there is no payment obligation.

Contribution Rate

Currently, there are three possible payment rates for the mandatory funded pension: 2%, 4%, or 6%. The taxpayer chooses the rate. It is important to emphasize that increasing the rate to 4% or 6% is entirely voluntary. Such a choice does not affect the basic social tax rate paid by the state.

Rate changes are permitted starting January 1, 2025. The increased rates are intended to increase the amount of funded assets within the individual pension basket. 

Reflecting the payment in accounting

Although entrepreneurs are required to make a funded pension payment. These expenses are not considered business expenses. They are not deductible from the company’s taxable income. This means the amount paid does not reduce the organization’s tax liability. It is not included in the business expense report.

However, the payment of this amount is recorded in Table 9.1 of the Form A tax return.

Summary

The mandatory funded pension system is designed to create a secure financial foundation for retirement. The frequency of payments options allow entrepreneurs to flexibly adapt the savings. These can be adjusted to their needs and preferences.