Researcher: Estonia's pension reform has split society onto two paths

Five years after Estonia's pension reform, roughly one-third of second-pillar savers have withdrawn their money, according to research by Heidi Reinson, a financial behavior specialist at the University of Tartu. In the first withdrawal wave in 2021, one-fifth of participants cashed out; that share has since grown to a third.

Reinson says the reform's true outcome will only become clear in 20 to 30 years, when a generation that had the chance to save throughout its entire working life reaches retirement, revealing a sharp contrast between those with savings and those without.

First wave driven more by emotion

According to Reinson, the first withdrawal wave was marked by distrust of the pension system, the state or banks, with many withdrawing funds on principle rather than actual need. Later waves have been more deliberate and economically motivated. Decisions were also shaped by well-known opinion leaders, since the pension topic is widely seen as complicated.

Looking at the demographic profile of leavers, Reinson found that people with a native language other than Estonian, payday-loan repayers and large families were more likely to withdraw, while those with higher education were more likely to stay. Distrust in the system was the main reason for leaving — a pattern shared with people who don't save for retirement at all.

The state came out ahead

Reinson notes that the biggest beneficiary of the first withdrawal wave was the state budget, which collected 1.3 billion euros in income tax, though this effectively shifted future costs into present-day revenue. Ministry projections suggest that, at the population level, those who stayed in the second pillar will benefit in the long run, though outcomes vary for individual households.

Reinson says the reform has put society on two different paths: those with only the first pillar, and those who have saved across all three pillars for years. This gap will become most visible among people born in the 1980s, potentially fueling a sense of unfairness and political pressure to raise first-pillar payments. She points to Estonia's especially radical step of allowing withdrawal of the state social tax portion as a cautionary example for other countries considering similar reforms.