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.
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.
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.
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.
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.