A survey commissioned by Luminor found that a fifth of Estonians do not save for retirement. The main reason for not saving is the belief that, despite all efforts, inflation will eat away at the value of the money they would have saved for retirement. :format(webp)/nginx/o/2019/11/14/12738757t1haf4c.jpg)
Pension. The photo is illustrative. Photo: Wong Sze Fei/panthermedia/Wong Sze Fei
A survey commissioned by Luminor found that a fifth of Estonians do not save for retirement. The main reason for not saving is the belief that, despite all efforts, inflation will eat away at the value of the money they would have saved for retirement.
The largest share of respondents (60%) put money aside for the second pension pillar. A third of respondents have also joined the third pillar to save for their pension, and a quarter are increasing their money by investing directly in shares and bonds.
According to Vahur Madison, a fund manager at Luminori pensionifondid, it is worrying that, according to the survey, 20% of respondents do not save money for retirement at all.
Of those who do not save, 39% said the main reason was the lack of prospects for saving for retirement, as inflation makes money less valuable. A quarter do not save because they have not thought about it. 12% have given up saving because they believe the state pension will provide enough income, and 8% do not plan to retire.
The survey also found a correlation with the respondents' level of education – the higher the level of education, the more likely a person is to save for retirement.
52% of people (more than half of those surveyed) with basic education do not save money for retirement, and every fourth person with vocational and secondary education does the same. At the same time, only about every tenth person with higher education (11% of those surveyed) does not save money for retirement.
Pension fund manager Luminor notes that the 40-49 age group stands out among the obvious pension defaulters, with 57% of them citing inflation as the main reason for not saving for old age, as it would “eat away at their savings.” At the same time, only 4% of those over 40 who do not save believe that their state pension will be enough.
“It is understandable that the economy and rapid inflation have made some people more sceptical about investing. However, it is worth remembering that in Estonia, inflation has exceeded wage growth only four times out of the last 20 years. The average return on stock markets is 7% per year, and inflation has exceeded this figure only three times in the last 20 years,” explains Madison.
He added that, in retrospect, the long-term effects of rising wages, profits and compound interest had still allowed savers to grow their assets significantly.
"If a 42-year-old puts aside €250 a month, then at an average return of 7% on their investments before and after retirement, by age 65 they could have around €1,000 a month in today's money to supplement their income for the next 12 years, on top of their state pension," Madison said.
The survey found that the main reason young people do not save for retirement is that they have not thought about it (43%). “Young people are generally advised to invest somewhat more riskily, and if investing starts in their twenties and is done consistently, they have a better chance of having a secure retirement,” said Luminor’s head of pension funds.
According to Madison, pension funds are also a good investment option for ensuring a decent life in old age thanks to state incentives: the state contributes 4% of a person’s salary to the second pillar from the social tax paid on their income. In addition, third pillar contributors receive a tax rebate on contributions of up to 15% (maximum six thousand euros) of their gross annual income.
