In the thread on 2nd pillar performance I was bringing up the Estonian “natural experiment” with allowing 2nd pillar withdrawals before, in What is your second pillar performance? - #269 by xmj
Now Estonian bank LHV has published some more calculations in Five years since the start of second pillar payments: hundreds of thousands of Estonians have missed out on a multi-fold increase in the value of their assets · LHV
If a person had accumulated 10,000 euros in the second pillar by September 2021, their average gross salary over the last five years had been 2,000 euros, they have consistently contributed 6 per cent to the second pillar (a personal contribution of 2 per cent and a state top-up of 4 per cent*), and their second-pillar fund achieved an average market return (8 per cent**) over the period from 1 September 2021 to 31 August 2026, the 10,000-euro portfolio has grown to more than 23,000 euros as of today. The person who decided to withdraw their saved 10,000 euros, however, received 8,000 euros in their bank account after paying income tax. “Money withdrawn from the second pillar before retirement age has mainly been spent on consumption, meaning that the financial security of a great many Estonian people has taken a significant hit,” said Vahur Vallistu, Chairman of the Management Board at LHV Varahaldus.
snipFor example, over a period of twenty years, a person earning the Estonian average gross salary of 2,200 euros can, by making a 10 per cent contribution (6 per cent personal contribution and 4 per cent state top-up), based on the average annual nominal return of second-pillar funds (4.6 per cent since 2002****) and an average annual wage growth of 3 per cent (the Ministry of Finance’s long-term forecast), will have accumulated over 100,000 euros by retirement age.
Now take this with a grain of salt, because there’s not a lot of advocacy for allowing complete withdrawals of the 2nd pillar in Switzerland.
It does serve well to show what can be ruined by messing with complex and poorly understood incentives 