This paper investigates the spending and financial behaviour 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 behaviour, 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 one year. Over 55% of the money withdrawn had been spent within three months and over 40% was used for repaying debts. The findings indicate that those who withdrew savings from their pension accounts did not adopt alternative retirement saving strategies, suggesting that early withdrawals worsen their long-term financial outlook.
JEL Codes: D12, D14, G51, H55
Keywords: Pension savings, second pillar, early withdrawals, young adults, spending, loans, investments
