Currently The Seimas Important changes are being considered regarding pension accumulation in the second pillar. Perhaps the most important of these are easier withdrawal of accumulated money and voluntary participation in accumulation instead of automatic inclusion.
The Ministry of Social Security and Labor, which is proposing the amendments, and some researchers claim that the changes will make the system more attractive and fairer, and that residents will trust it more because they will be able to assess for themselves whether it is worth saving there.
However, critics of the changes warn that their implementation will result in a reduction in pensions for everyone - both those who continue to save and those who decide to withdraw from savings.
Will continue to encourage savings with state support
Last week, Minister of Social Security and Labour Inga Ruginienė discussed changes to pension accumulation with the Homeland Union-Lithuanian Christian Democrats (TS-LKD) parliamentary group in the Seimas. Its leader Mindaugas Lingė pointed out that the constant reform of the second pension pillar does not inspire confidence and it is unclear how this transformation will affect people's income in old age.
"In our eyes, it seems that those pensions will be lower because the exit is being liberalized, but no alternative is being created - what next?"
"We saw the Estonian model, a similar path was followed, allowing easy exit, but people's behavior showed that those large percentages went to short-term consumption, meeting daily needs," said M. Lingė.
He wondered what alternatives, incentives, would be available to keep people motivated to act responsibly and save money for old age.
I. Ruginienė replied that the goal of this reform is precisely to increase trust, which is currently completely collapsed.
She said that after long discussions, a compromise was born that meets the interests of both groups of residents, namely those who want to have the opportunity to withdraw from savings and those who want to continue saving with trust in the system:
"To really encourage people to save more, the compromise option – a subsidy or a state incentive – remains in Tier II. This will really motivate people to think about the future."
Tadas Gudaitis, head of the Lithuanian Investment and Pension Funds Association, positively assessed the move to abandon the state incentive.
According to him, this is socially fair, as this state aid is most beneficial to those earning low incomes - the incentive has the greatest impact on them.
There will be a mass withdrawal from the second tier, so they won't save anything?
Vilnius University Professor Teodoras Medaiskis considered that those who earn more by taking advantage of the opportunity to withdraw from the second pension pillar will not lose out, since they will invest and save that money independently.
However, he suspects that those with lower incomes often lack financial literacy and do not know how to invest.
So, after withdrawing from savings, they will use those funds for everyday needs and will not save anything for old age, even though the 1,5% state incentive would have provided them with the greatest benefit.
"This part of the people should probably be the most inclined to leave, because they have this mindset. If, in addition to that, a person also had a savings part, it would still be better than not having it. And the current proposals are focused on running away from that system as soon as possible, that it didn't work, that it's bad, that it's unfair, etc."
"This has a big impact on people and, well, I would fear that there will be a much larger scale of withdrawals and more people will still be left without that additional pension savings," the professor shared his insights.
T. Gudaitis agreed that people will not be encouraged to save, because they will be able to constantly stop contributions, and given that opportunity, they will do just that, so they will not save anything and later blame everyone around them, except themselves.
Therefore, in the opinion of conservator Gintarė Skaistė, savings should be either completely voluntary without state assistance, or with state assistance, but mandatory for everyone.
Pensions will decrease both when continuing and when accumulation is discontinued
According to Vaidas Cibas, Head of the Financial Market Supervision Department of the Bank of Lithuania, these proposed changes will not allow for more savings for retirement, since a person will be able to withdraw from the savings whenever they want.
As a result, the ratio of pension to previous salary income or replacement rate will be quite low and there are no assumptions that it will increase.
"Another problem is the demographic situation. This needs to be addressed, because if nothing is done, the pressure on pillar I (Sodra pensions, ed. note) will be very high, and we will have to make decisions in the future," said a representative of the Bank of Latvia.
According to Daiva Gerulytė, Head of the Pension Annuity Department at Sodra, the problem is that annuities will become more expensive - for the same amount, residents will receive a smaller annuity and the group of people who will be able to purchase that annuity will decrease, because they will not have accumulated as much money.
For this reason, G. Skaistė stated that she does not understand the purpose of this reform, since it is clear that pensions will be lower not only for those who leave, but also for those who stay: "
"Because the annuity will be more expensive, people will receive lower pensions, even if they stay in the system. The impact is still negative on their future pensions."
At that time, T. Medaiskis said that he had no doubt that the social insurance system would indeed be of sufficient size to support people in old age.
However, he did not hide the fact that if this additional pension component in pillar II is no longer available, then the total income in old age, no matter how you turn it, will still be lower.
"Let them decide for themselves what to do with their money"
T. Gudaitis considered how a reform that should be responsible for higher income in old age is being created in such a way that the opposite is true and pensions would be lower in the future.
I. Ruginienė emphasized that the main goal is to give every person the opportunity to freely choose where and how to save for old age: "Let's trust our citizens and let them decide for themselves what to do with the money they earn."
How many people will leave and who will be attracted to it? The only answer is that now it depends on the performance of the funds themselves. The golden period is to prove to people that it is really worth saving in the second tier.”
She said she did not understand why some people think pensions will be lower, since the "Sodra" pension shows excellent results and indexation is taking place at a fairly rapid pace.
"We will take the second step and look for opportunities to accelerate indexation more. Surely every resident can be calm about the first-tier pension. But this does not negate our call for additional savings and investments."
"Let's not paint the worst-case scenario, especially with a state subsidy, they will most likely decide to stay. And whoever makes a different decision, we, as politicians, should respect that decision," said the Minister of Social Security and Labour.
The ministry's proposals should be presented to the Seimas meeting room in two weeks.
Author: Deimantė Buslevičiūtė, TV3.lt
