Second pillar

What it means

The second pillar is funded old-age saving. Part of the contribution that would otherwise stay wholly with the Social Insurance Agency goes to a personal account with a pension management company.

For the employer neither the rate nor the amount changes: the same contribution is simply split differently. The employee bears the difference, drawing part of the future pension from savings rather than the pay-as-you-go system.

It is often confused with the third pillar, but it is a different system. The second pillar is part of compulsory insurance and costs the employer nothing extra, whereas the third pillar is voluntary supplementary saving to which the employer may contribute on top of pay.

How it works in practice

In the payroll system it is enough to flag the saver correctly. From there the software splits the contribution and both payroll records and returns follow without intervention.

An employee may add voluntary contributions. Those come out of their net pay, and the employer is involved only as the party making the deduction.

The employer does not send money to the pension management company directly. The whole contribution goes to the Social Insurance Agency in the monthly return, and the Agency passes the saver’s share on to their company, so the firm has a single recipient even when staff save with different companies.

What to watch out for

The usual error is a wrong or missing second-pillar flag at hiring. The whole contribution then goes to the Agency, and correcting it means amended returns for every month affected.

For an employee in employment with several employers, second-pillar participation must be flagged correctly at each of them. If one records it and the other does not, part of the contribution goes to the wrong place, and the mismatch shows up only in an inspection or the saver’s statement.