What the calculator shows in future value sheet?
The purpose of the calculator is to show people what their future pension will amount to and how decisions made during their lives will affect it. We have combined two views in the calculator - the present value of the future pension and the future value. The current value of the pension is calculated on the blue tabs of the calculator and the future value is shown on the Future value tab, and this tab is green.
The model for calculating the future value of pensions has been developed within the research project InWeGe (Income, Wealth, Gender) joining Office of the Commissioner for Gender Equality and Equal Treatment, University of Tartu and Tallinn University of Technology (TalTech). You can read more about the goals of the project here
What is future value of the pension?
The prices of goods and services have increased on average every year due to inflation, and wages must follow the increase. The decline in purchasing power, i.e. inflation in different years in the past in Estonia, can be compared on the website of Statistics Estonia.
On future value tab, the calculator considers prognoses of the average salary growth by the Ministry of Finance, the average yield of pension funds and includes other variables to calculate the future pension in the euros of the year of retirement. You can read more about the method of calculation here.
The forecasted amount of our future pension may be higher than our salary today, but it does not mean that in the future we can buy the same amount of goods for our pension as today for our current salary. As prices change, so does the purchasing power of money.
On the future value tab, the percent share of the pension amount of the Estonian average prognosed gross wage is shown. If we calculate the same share of today's gross wage, we get an idea of the purchasing power of the future pension.
Example: if Tõnu's pension in 2052 is 1738.11 euros per month that is 33% of the average projected gross salary in 2051 (5267.00 €)
Today, in 2020, its value would be 464.31 euros per month that is 33% of the average gross salary of the previous year (2019) (1407.00 €)
33/100 × 1407.00 = 464.31 euros per month.
Why the results on the blue tabs and green tab of the calculator do not match?
In one calculator we present next to each other two different visions how to calculate future pensions. The blue tabs of the calculator present the amount of pension only through current purchasing power of salaries and do not consider the yield of pension funds.
The future value tab uses prognoses of future wages for calculating pensions, also considering inflation and the yield of pension funds. In addition, more detailed personal data can be entered on the future value tab: part-time work, yield of personal pension funds, etc.
What can you see in the figure?
The figure shows graphically how your future pension increases with each year you work, and the total average for all years is indicated with one number above the figure.
The figure also illustrates how the amount of payments from the II and III pillars increases depending on the yield of the pillar funds.