Important Risks for the Entire Society May Arise from the Reform of the Second Pillar
The Chamber of Commerce and the Estonian Employers’ Confederation have sent a written opinion regarding the draft mandatory pension reform, which highlights the important risks in the society that may arise from carrying out the reform that has been put together in a hurry and by ignoring the rules of legislative drafting.
Constitutionality of the draft should be assessed
According to the draft, people who have subscribed to the second pillar will be able to start using the funds meant for pension at the time of their choice before pension age, but this option cannot be used by people who are entitled only to the first pillar. Based on that, it is necessary to analyse the constitutionality of the amendment with respect to the principle of equal treatment, because some people will be able to use the social tax they have paid, but others not.
According to the planned draft, the people whose collected assets exceed €10,100 cannot use their money all at once, but in three instalments distributed over a year. Due to the fact that as a result of exiting the second pillar, the value of the assets in the second pillar may change, there is a risk that the value of the assets of the people who have saved more money will decrease before they have the chance to use it.
The units of pension are not protected against ending up in commercial use. The pension funds should not be a part of commerce and bailiffs should not be able to subject them to claims, including those filed by the pledgees, trustees in bankruptcy or others. Furthermore, no analysis has been conducted on if and how the cancellation of annuity contracts which have been concluded for life is constitutional.
Changes decrease investments into Estonia
Since the year 2015, a number of changes have been made in the regulation of the activities of the pension funds and new funds have been created. From the point of view of the client, this has had a positive impact on productivity as well as decreasing the service fees.
The experience and surveys from other countries show that the majority of residents would withdraw their savings from the second pillar if such possibility would open, especially in a situation where they find themselves in financial difficulties. Provided that the majority of the second pillar assets would be withdrawn, the pension system would become unsustainable and bring along decrease in investments as well as increase in the tax burden.
Making the second pillar voluntary would limit the investments made by the pension funds in Estonia, for example, LHV and Swedbank are already changing their current principles with respect to investments made in Estonia, which changes the sources of financing of Estonian companies. Monet saved in the funds directly helps making investments into local companies, creating new jobs and facilitating economic growth.