The second- and third-pillar pension systems are playing an “increasingly important” role in the Estonian pension system, according to Luminor Pension Funds fund manager, Vahur Madisson.

His comments are in response to projections by the Ministry of Finance, which predict that average gross wages and salaries will rise by around 3-4 per cent a year in the coming decades, reaching around €11,581 by 2070.

At the same time, Estonia faces serious demographic changes that will have a major impact on the sustainability of the current pension system.

"Employment is projected to fall by around 130,000 by 2070, while the number of people of retirement age will increase significantly. This means that tax revenues will fall, healthcare spending will increase, and the state pension, the first pillar of the pension system, could come under severe pressure," explained Madisson.

Therefore, he believes that the only way to maintain the standard of living that people are used to in retirement is to start meaningful and consistent accumulation early on.

Madisson said the second and third pension pillars are playing an increasingly important role in pension formation, offering the opportunity to build up a personal financial buffer and live with dignity and independence in later life.

"If a young person starts saving today and contributes 6 per cent of their gross salary to the second pillar, with the state adding 4 per cent, in 40 years' time their pension could be 50-60 per cent of their final salary.

"The first pillar will cover about 30-40 per cent of this. If, in addition, a further 5 per cent of salary is invested in the third pillar each month, the total pension could reach 60-65 per cent," he explained.

Madisson cited the Netherlands as an example, where pensioners aim to receive around 70 per cent of their former salary.

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