{"id":22482,"date":"2025-08-06T13:10:00","date_gmt":"2025-08-06T10:10:00","guid":{"rendered":"https:\/\/ajakirimaja.ee\/pensionisambad\/"},"modified":"2025-10-13T15:37:25","modified_gmt":"2025-10-13T12:37:25","slug":"pension-pillars","status":"publish","type":"post","link":"https:\/\/ajakirimaja.ee\/en\/pension-pillars\/","title":{"rendered":"Pension Pillars"},"content":{"rendered":"\n
<\/div>\n\n\n\n

Pippi I<\/strong><\/em><\/h2>\n\n\n\n

\u2018\u201eWell now, Pippi, how much do you think eight and four are?\u201c<\/em>
\u201eOh, about sixty-seven,\u201c hazarded Pippi.<\/em>
\u201eOf course not,\u201c said the teacher. \u201eEight and four are twelve.\u201c<\/em>
\u201eWell now, really, my dear little woman,\u201c said Pippi, \u201ethat is carrying things too far. You just said that seven and five are twelve.\u201c\u2019<\/em><\/p>\n\n\n\n

<\/div>\n\n\n\n

Fatigue<\/strong><\/h2>\n\n\n\n

Is there a topic more tiresome than that of pension funds? The methods used for drawing attention to them only make matters worse. All these salespeople pestering you in the shopping malls or on the phone\u2026 Yuck! Annoying. Some weeks ago I got a call from a pension fund lady who tried to convince me that I should return one of my pillars to their bank. But how do these pillars grow anyway? Where should you move the sum that you have collected so that it could at the very least keep up with the inflation? And what role are these savings of mine currently playing in world affairs?<\/p>\n\n\n\n

The Push<\/strong><\/em><\/h2>\n\n\n\n

In the documentary film The Push, the UN Special Rapporteur on the Right to Adequate Housing Leilani Farha looks into how the affordability of housing (a fundamental human right) is rapidly decreasing in the (large) cities of the world. In the film, Farha tries to dig into the layered inner workings of the financial world and eventually comes up with a rather fundamental question\u2014where do large investment firms such as Blackstone, the largest asset manager in the world, get their money from? One of the findings of the film is that globally, vast sums of money are kept namely in pension funds, which per contract need to be grown even larger.<\/p>\n\n\n\n

The pension system in Estonia rests on three pillars\u2014the state pension (I pillar), mandatory funded pension (II pillar) and supplementary funded pension (III pillar).<\/p>\n\n\n\n

It is not unthinkable that the first of the three will fully disappear as the population grows older and there will be less and less working-age people. Thus, pooling money into the two other pillars\u2014i.e., investment funds\u2014is also incentivised on the national level. According to the pension centre, the purpose of the pension system is to help people maintain their current standard of living and monthly income when they retire.<\/p>\n\n\n\n

\n
\n
\"\"<\/a>

Frames from the documentary film The Push, in which Leilani Farha looks into the rapidly decreasing affordability of housing in cities.<\/em>
<\/figcaption><\/figure>\n<\/div><\/div>\n\n\n\n
\n
\"\"<\/a><\/figure>\n<\/div><\/div>\n<\/div>\n\n\n\n
\n
\n
\"\"<\/a><\/figure>\n<\/div><\/div>\n\n\n\n
\n
\"\"<\/a><\/figure>\n<\/div><\/div>\n<\/div>\n\n\n\n

Maintaining your current standard of living<\/strong><\/h2>\n\n\n\n

Pension funds are a sub-class of investment funds. The purpose of a fund manager\u2019s work is to grow the value of the assets. Most funds also promise to invest ethically and sustainably. And yet, we are left asking\u2014how is this guaranteed? What should we even consider ethical? Is it ethical to invest in wind power if the planned wind-farm interrupts a bird migration route? Is it ethical to invest in the production of electric vehicles if mining the lithium that is necessary for their batteries comes with such costs and effects that we know of? Is it ethical to invest in rental apartments as an asset class with a stable return if housing affordability keeps decreasing and we keep being reminded of the quote (who is the author I cannot recall): \u2019If your waiter in a cafe cannot afford to live 15 minutes away from her workplace, then we are not talking about a city but a theme park\u2019?<\/p>\n\n\n\n

The fact that buzzwords such as \u2018sustainable\u2019 or \u2018ethical\u2019 are nebulous and not easily defined is admitted by the funds themselves.<\/p>\n\n\n

\n
\"\"<\/a>
Ingrid Allik,<\/em> A birdie watches how life rolls by<\/em><\/figcaption><\/figure>\n<\/div>\n\n\n
<\/div>\n\n\n\n

EfTEN Capital is the largest real estate funds manager in the Baltics. An excerpt from their website:
\u2028
\u2018We acknowledge that real-estate carries potential negative effects towards global sustainability goals, and we believe this impact can be managed. Setting sustainability goals has become increasingly important for investors but has not always been explicit. We manage funds that have been established at different times and have different investment mandates and ESG ambitions.<\/p>\n\n\n\n

Therefore, in the context of SFDR (2019\/2088 EU) we are unable to formally confirm that we consider adverse impacts of investment decisions on sustainability for all our funds.<\/em>
This is due to two reasons: i) quantifying adverse effects at this stage is difficult due to shortage of relevant sustainability data; ii) the regulation package for management of adverse impacts is very new and best practice is yet to develop.\u2019<\/em><\/p>\n\n\n\n

<\/div>\n\n\n\n

In the beginning of 2023, financial newspaper \u00c4rip\u00e4ev wrote that although investing in real estate has so far been popular mainly among Western European pension funds, it is now a growing trend also in Estonia. In the article, real estate expert T\u00f5nu Toompark also points out that approximately third of Tallinn\u2019s 220,000 housing units are rentals, but in the future, their share is likely to grow, for homes are becoming less available.<\/p>\n\n\n\n

LHV with its pension funds states its orientation toward real estate most explicitly. As of 2023, it owned 409 rental apartments in Tallinn and Riga, among other real estate investments. Although the share of rental apartments can be predicted to increase, LHV\u2019s Head of Real Estate Investments Rait Riim does not expect a massive and market-altering influx of institutional investors to the Estonian market. An excerpt from \u00c4rip\u00e4ev:<\/p>\n\n\n\n

\u2018According to him, the geopolitical situation is such that large international funds will not be coming here in the next 5 to 10 years. On the other hand, this does not present much of an advantage to local investors, because getting detail plans confirmed and building new apartment buildings is extremely time-consuming. \u201eIt takes decades before we start feeling the influence of large investors on the local apartment market,\u201c Riim added.\u2019<\/em><\/p>\n\n\n\n

<\/div>\n\n\n\n

A brief discussion with Riim about the effects and the future of pension and other real estate funds suggests that the role of local investors also takes local specificities into account. Articles about Blackstone\u2019s feats and the aforementioned film The Push highlight the dismantling of existing (municipal) rental markets in, say, Berlin, Copenhagen or Stockholm, whereas in Estonia, where the public sector\u2019s role in housing economy has been rapidly receding, the arrival of institutional landlords manifests itself in building up (the market) instead. The middle-class rental buildings managed by LHV funds also stand out for their exemplary sustainability labels.<\/p>\n\n\n\n

<\/div>\n\n\n\n

\u2018[..] EfTEN was founded during previous financial crisis and the recession driven by coronavirus provides a good timing for entering a new business segment. We are planning so-called bulk purchases during upcoming low tide in the construction market, which means that the fund will purchase entire residential buildings, not individual apartments<\/em>
[..]<\/em>
We see a good potential in the residential rental property market because compared to Scandinavia it\u2019s still in the very beginning and not yet institutionalised.\u2019<\/em>
Viljar Arakas, CEO of EfTEN Capital<\/em><\/p>\n\n\n\n

<\/div>\n\n\n\n

Collecting<\/strong><\/h2>\n\n\n\n

The drive to secure one\u2019s own future\u2014i.e., personal fear of old age and death\u2014plays an elusive yet very real role in the transformations, fairnesses and unfairnesses in the world also today. Although due to the geopolitically uneasy location of Estonia and the other Baltic states, we are in some sense protected from the impact of global financial and real estate conglomerates, there are cities in the world where pension funds intertwined with other financial instruments are considerable players in real estate and housing markets, thus affecting also urban development and (wealth-based) segregation of the population. Here, where there is practically no such thing as a housing policy, they are still said to have a largely extraneous role.<\/p>\n\n\n\n

And yet, a housing economy managed by pension funds and other financial actors seems to involve a certain contradiction. As a pension collector and thus investor (indeed, everyone can be one\u2026), I find it beneficial if the value of assets increases and rents go up. As someone who simply needs a place to live, I do not find it necessary nor beneficial.<\/p>\n\n\n

\n
\"\"<\/a>
Ingrid Allik, A bird and a strange thing<\/em><\/figcaption><\/figure>\n<\/div>\n\n\n

\u2028Confessions<\/strong><\/h2>\n\n\n\n