Other financial establishments and services

Using Insurance Services is relatively uncommon in Estonia, with the exception of mandatory traffic insurance. The growth in insurance is mostly impeded by the poor economic condition of the population. The economic crisis really harmed the insurance sector. 22% of insurance premiums are connected with mandatory traffic insurance, 27% with voluntary car insurance and over 19% with property insurance. The percentage of life insurance is 23%.

Tallinn Stock Exchange
All Estonian securities are registered in the Estonian Central Register of Securities where all the share registers of public limited companies, securities accounts and funded pension accounts are registered. Transactions take place either over-the-counter or in the Tallinn Stock Exchange.

The Tallinn Stock Exchange was founded on 31 May in 1996 and since 2001 it belongs to the common trading environment for securities traded in the Helsinki stock exchanges. In 2008, NASDAQ and OMX, the stock market union of Nordic countries, combined and, as a result, the Stock Market of Tallinn is now a part of the biggest stock market company in the world. The Tallinn Stock Exchange has never existed otherwise than in electronic form, which means that securities do not exist on paper but only as electronic entries in the register.

Right after the stock exchange was opened it generated lots of interest as a novel phenomenon and therefore trading was quite active and the prices of securities were rapidly going up. Still, after a short while, problems relating to the financial system as a whole and especially to banking emerged also in Estonia. The eruption of the Russian crisis in August 1998 had a negative effect on the developments as well. Companies transferred to private ownership gradually left the stock exchange that had had a successful start, and new companies failed to supplement them. Thus the Tallinn Stock Exchange was in a state of lethargy for a couple of years. A revival occurred in 2001 when Estonia's economic indicators started to ameliorate and Estonia's accession to the European Union became practically certain.

Today stocks of 15 companies are traded on the Stock Market of Tallinn, with no debentures registered.

Investment Funds
Investment funds have not enjoyed too much popularity among the Estonians. The reasons thereof are poverty, earlier scandals around a number of investment institutions as well as lack of knowledge about investing. The majority of Estonia's investment funds are linked to local banks – Swedbank, SEB, LHV, Danske (Sampo), and Nordea Bank. Pension funds are administered by an insurance company Ergo, and many fund managers with no connection to banks offer contractual investment funds (Trigon offers the greatest number of them). The financial crisis of 2008-2009 strongly affected investment funds and, although things are better now, former levels have not been reached.

Pension reform and pension funds
Estonia's pension system is based on three “pillars” – state pension, compulsory and non-compulsory pension insurance. The first pillar is based on the social security payments of today's workforce and is comprised of the national pension, which is the same for everyone, plus the share depending on the number of years in service and the amount of salary. Today’s pensioners get generally just the first pillar pension and the average retirement pension is 48% of average monthly net income.

The compulsory pension insurance started raising funds since 2003 and presently it is compulsory to people only starting their careers. Others may voluntarily join the system but it cannot be abandoned later. The compulsory pension insurance system requires a person to pay 2% of the salary, to which the state will add 4% from social tax and the aggregated sums are invested into a freely chosen pension fund. Funds can be switched. In June 2009, the state temporarily stopped paying its contribution to pension funds, to avoid an excessive increase in the deficit of the state budget. In 2011 half of the state’s contribution was restored and beginning in 2012 the full contribution will return. The state will repay the lost funds to the people who went on with their payments in 2008-2001 (37% of those enrolled).

Mandatory pension insurance had a successful beginning: more people than expected joined it. Now, this includes 616,000 people, or nearly 90% of the labor force and 72% of people that are at least 16 years old and have not reached the age of retirement. 78% of people have chosen “progressive funds” to invest in, in which, depending on the type, they may put up to 50% of collected payments into stocks. The mandatory funds started paying out money in 2009, with the sums being quite low.

The voluntary pension insurance was started earlier and it offers different possibilities – a life-insurance-type pension insurance contract or investing into pension funds. There is no upper limit for the payments, but pension payments of up to 15% of one's salary are exempt from the income tax.

Details about this article