Also last year there was a reform in the pension system. You can now choose to exit the pension system and have a large part of your fund liquidated.

Around 14% of the population decided to use this and cash out their future pensions in 2021.

Not sure how much of these funds got spent where but certainly it had some effect on the real-estate prices.

Why would they do that? Isn't that setting them up for a pension crisis in the future?

Because people are shortsighted and want a new TV/car/apartment RIGHT NOW.

Also, there's a certain mistrust of the pension scheme and people think that the money in their pension accounts will be gone anyway by the time they reach the pension age.

> Also, there's a certain mistrust of the pension scheme and people think that the money in their pension accounts will be gone anyway by the time they reach the pension age.

Perhaps because it's true. In my relatively short life, the retirement age went up by over 5 years, and by the time I reach it it's going to go up by at least another 5 years. And let me tell you, there's no chance in hell I'm retiring at 70. A conservative fund would 'outperform' any government pension system in the long term.

Remember, the pension system was devised in a time where a lot of people died before the pension age. It is impossible for the pensions to keep up without overtaxing the young or increasing the pension age.

On top of that, you may contribute north of 100k in your lifetime towards your pension 'fund' that you will never see if you die a day before retirement (as my father did).

Not to mention the fact that there's no actual pension 'fund', not up to the full amount at least (or anywhere near). Most of the funds I pay in today will be paid out to pensioneers tomorrow.

You will still get the state pension. The part you are able to cash out is managed by other funds(banks etc) and it would act as an extra to state offered pension.

> You will still get the state pension

What exactly would fund it then? Pensions system typically works by current generation providing for the previous. If we allow newer generations to "cash out", what would be the source of funding?

The pension system in Estonia consists of a shared fund "First Pillar" and an individual specific fund "Second Pillar". Part of your salary goes into the pension system and gets split between these two funds.

So the current workforce is helping to keep up the First pillar for the current pensioners. But at the same time the current workforce is making deposits into the Second Pillar which just invests their money into the markets.

So people can liquidate their Second Pillar without messing up the First Pillar for everyone else.

You fund a bit to the state pension and a bit to a private pension. Based on a previous comment Estonia allowed you to cash out the private pension. I assume. Romania has something similar where you pay for your state pension, mandatory level 1 private pension, and optionally a level 2/3 private pension. State + level 1 private pensions work as you'd expect, whereas level2/3 generally have cash-out terms. It's not either/or, if you want a level 3 private pension you need to contribute to both level 1&2.

edit: replace level with pillar, as I couldn't think of the word and saw it used by sibling comment after posting.

You can cash it out and manage your investment yourself. I interpret that small 14% as most of them doing so. Of course, I have no idea.

What happens if you essentially waste all the money? Will you be left totally without pension or will others foot the bill?

The pension system in Estonia has 3 tiers.

Everyone has the 1st, basic tier ("State pension"). Then there's the 2nd tier called the "Mandatory funded pension" which is the one that held the most savings and was "freed" now and then there's the 3rd one called "Supplementary funded pension" which has always been "free" as in you can stuff money in there and you can take it out as well.

People who blew their 2nd tier on a new car/TV/vacation/paying existing loans will still have the 1st tier but that will only guarantee a pension that's big enough that you won't directly starve but it's not big enough to actually let you live either.

Your pension would be substantially smaller.

Technically the pension fund consists of 3 parts:

1) Shared pool of funds. Current workforce pays into the pool and current pensioners get payouts from this pool. You can't liquidate this part of your fund as there is no part that is fully "yours"

2) Individual pool - part of your salary automatically gets put into this pool and invested into the pension fund of your choosing. THIS is the part that people can now liquidate before they reach the pension age

3) Individual pool of extra deposits - You can choose to add money into this pool and incest it in a pension fund. If you withdraw funds during your pension age then no gains tax is applied on the profits. But you can liquidate the fund at any point as long as you pay the gains tax.

So these citizens/residents will only be left with the first option as their pension payments.

Then you suffer the consequences of your own choices.

As opposed to paying into a ponzi?

Can you elaborate what you mean?

Estonia has for quite some time tried to establish itself as a "Startup HQ" for startups both in Estonia and from the world outside of Estonia. As a result, Estonia has the 3rd highest startups-per-capita compared to other countries in Europe.

And exactly how would that cause higher inflation?????

It affects the income gap.

People in the startup sector earn _much_ more than other sectors - the difference is, if I'm not wrong, one of the biggest in the EU. So it creates a) a lot of inequality and b) drives up prices of certain goods (houses, apartments) because there's a noticeable % of the population in the startup sector who has now their sweet exit money that's looking for a new home.

"People in the startup sector earn _much_ more than other sectors - the difference is, if I'm not wrong, one of the biggest in the EU."

Do you have a source for this claim?

I would be very surprised if that was true.

I think parent lives in some start-up bubble full of rich exciters, as where I live (Austria), start-up exists don't move the needle at all.

> I think parent lives in some start-up bubble full of rich exciters I do.

> as where I live (Austria) start-up exists don't move the needle at all.

I totally believe this as the "% of people who are employed by a startup that has made an exit" is vastly different in Austria vs Estonia.

The total population of Estonia is so small that all exit events stand out. This year, there have been about 40 houses sold in the city I live in (pop 100k) [1]. From that only 7 are newer than 20 years. 7. Meanwhile, there are tens of people here who have been part of at least some kind of exit event during the same period and who are now actively looking for their first house. No other event in any other industry generates a sudden need for new real estate. At least not here in Estonia. There's a) extremely limited supply and b) a massive price increase due to extreme increase in demand (well, "extreme" in the local context)

[1] https://www.maaamet.ee/kinnisvara/htraru/FilterUI.aspx

I feel you, but your statement is true for Estonia, not for the whole EU like you originally claimed.

That's why I said you live in a different bubble.

Don't take my word for it indeed - I saw an article with a nice graph about that like a year ago but 10 minutes of Googling didn't turn up anything at the moment.

So here's an anecdote instead :) Sweden. Average salary 36100SEK, average "Software- and system developers" salary 46500SEK. So a software dev earns ~30% more than the average salary. [1]

Estonia. Average salary 1576EUR. average "Software developer" salary 3753EUR. So a software dev earns ~140% more than the average salary [2]

Now I didn't find an official source for "% of people employed in the startup sector" for both countries but my guess is that it's much bigger in Estonia than in Sweden (based on [3]) and that's the reason for my overall pessimistic view that the startup scene here in Estonia is one of the biggest causes of income inequality in the EU (and I'm saying this as a person living in the startup bubble in Estonia myself)

[1] https://www.statistikdatabasen.scb.se/pxweb/en/ssd/START__AM...

[2] https://palgad.stat.ee/en#

[3] https://2020.stateofeuropeantech.com/chart/746-3309

A higher share of the gdp is startups than individuals.

and, how does that equate to inflation? They can't really print EUR right? So it has to be commodity and energy prices rising from externalities.

Oh this is a very funny topic.

You are probably aware that IT startups require engineers. And in Estonia there's only one tech university with a very arguable level of education.

Working in this field for decades, can assure you that for recent years Estonia made a huge progress in importing engineers from Russia, Belarus and Ukraine. Those high-quality engineers actually made it the Startup HQ of Baltics.

As for now, the immigration policy does not permit any work visas for Russian or Belarusian citizens, so this flow is depleted. Ukrainians have stopped coming here few years ago as salary levels were higher in Kyiv and it made no sense in coming to Tallinn. Today they just can't leave the country.

The biggest motivator for engineers from mentioned countries to come to Tallinn was the big Russian-speaking community, which made it "live in Europe, speak in native language" for them. As of today, the pressure on Russian language based education is extremely big, and having kids you want to teach in native language, coming to Estonia for Russian-speaking developers makes no more sense .