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How the large-scale early withdrawals from private pension plans were used: insights from young adults

Author

Listed:
  • Triin Bulõgina
  • Merike Kukk

Abstract

This paper investigates the spending and financial behaviour of young adults in Estonia after they withdrew their pension savings from the previously mandatory second pillar. When the option was first implemented in 2021, one pension saver in five exercised it. We use account-level data to explore changes in spending and investing behaviour, and in bank savings and debt holdings among those withdrawing. Regression analysis of differences in growth rates over various time horizons between matched samples reveals that early withdrawals have substantial short-term impacts on spending and the financial situation of those making the withdrawal, but these effects subside within one year. Over 55% of the money withdrawn had been spent within three months and over 40% was used for repaying debts. The findings indicate that those who withdrew savings from their pension accounts did not adopt alternative retirement saving strategies, suggesting that early withdrawals worsen their long-term financial outlook.

Suggested Citation

  • Triin Bulõgina & Merike Kukk, 2025. "How the large-scale early withdrawals from private pension plans were used: insights from young adults," Bank of Estonia Working Papers wp2025-03, Bank of Estonia, revised 06 May 2025.
    • Handle: RePEc:eea:boewps:wp2025-03
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//https://haldus.eestipank.ee/sites/default/files/2025-04/wp_2025_03.pdf
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    More about this item

    Keywords

    Pension savings; second pillar; early withdrawals; young adults; spending; loans; investments;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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