Study: Estonians want risk management in the 2nd pillar, but choose passive funds

A Norstat study commissioned by LHV reveals a paradox in Estonia's 2nd pillar pension market: 68% of residents consider active risk management important, but in reality many choose passive funds. This shows a gap between people's preferences and their actual behavior in pension savings.

A notable paradox exists in Estonia's 2nd pillar pension system – according to a Norstat study commissioned by LHV, 68 percent of residents believe it is important that pension savings growth be managed through active risk management, but actual behavior tells a different story.

Wishes and actions do not align

The study results point to a clear gap between people's stated preferences and their actual choices. Although most pension savers say that active risk management is important to them, passive index funds are gaining ever greater popularity. Such funds track market averages and do not respond flexibly to changes.

Awareness and decision-making capacity

According to experts, this contradiction may stem from several factors. On one hand, pension savers may not fully understand the difference between active and passive fund management. On the other hand, choices are often influenced by cost considerations – actively managed funds generally have higher management fees than passive alternatives.

The pension reform that came into force in 2021 and gave people the option to withdraw from the 2nd pillar has significantly changed the entire market. Some savers have withdrawn their money, others have made active reallocations, meaning that fund selection has become more important than ever before.

What this means for the future

Such market studies are important to help pension system developers and fund managers better understand what pension savers actually base their decisions on. If people want active risk management but choose lower-cost passive funds, this issue requires clearer public communication and financial education so that savers can make decisions that correspond to their actual preferences.