The table below helps to understand which pension-related payments are tax-free and which payments shall be taxed from 1 January 2021.
I pillar: State pension
II pillar: Mandatory funded pension
III pillar: Supplementary funded pension
No payments are made before the pre-retirement or retirement age.
The following is subject to income tax at the rate of 20%:
to a person before the II pillar retirement age* (incl. leaving the pillar) or payout to the successor
payment to a person before the III pillar retirement age**
The following is subject to income tax at the rate of 10%:
at retirement age of 55** and if the collection period has lasted at least five years, or
payment made at retirement age or up to 5 years before reaching that age.
Tax free is:
work capability allowance paid by the Unemployment Insurance Fund
to a person with no work ability (regardless of age),
payment made at retirement age or up to 5 years before reaching that age and a lifetime pension or a fixed-term pension divided by life expectancy*** payment shall be made periodically at least once every three months.
What kind of payments shall affect basic exemption (up to 6,000 euros per year)?
State pensions are taken into account as taxable annual income and affect the calculation of a person's basic exemption.
Payments made before the III pillar retirement age, which are subject to income tax at the rate of 20%, are taken into account as annual income and affect the calculation of a person's basic exemption.
What kind of payments shall not affect basic exemption (up to 6,000 euros per year)?
payments from II pillar, which have been taxed with income tax 20% or 10%,
payments from III pillar, which have been taxed with 10% income tax,
shall not reduce a person's basic exemption.
All deductions can be made in the income tax return of a natural person on the account of taxed income tax and withheld income tax (20% or 10%).
Tax-free payments are not declared.
Entries within II pillar, including the transfer of insurance pension or fund pension money to a pension investment account, shall not be considered as payouts and shall not give rise to any tax liability.
* The retirement age of the II pillar is the retirement age or five years before reaching that age.
** The retirement age for those who joined the III pillar until 2020 is 55 years, and for those who have joined from 2021, the retirement age is similar to the II pillar.
*** Term pension is calculated at least for the calendar year preceding the previous calendar year corresponding to a person's age on the basis of the average number of years remaining for men and women published by Statistics Estonia.