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

Summary/Abstract: This paper investigates the spending and financial behavior 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 behavior, 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 half a year. The largest amounts were used for consumption and repayments of loans while the amounts invested were marginal.

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