2nd pillar pension system can ensure that pensions in future do not decrease- Lithuania's central bank

Citizens actively participating in the 2nd pillar pension funds system can expect an increase in retirement pensions by a third. The two pillar system costs the government annually relatively significant amounts, however, after several decades, the system, with private accumulation, would pay off, the Bank of Lithuania said in a statement.

Such a conclusion was reached by specialists at the Bank of Lithuania after performing a survey which assessed the influence of the 2nd pillar pension fund system on the population and government finances,

"The research results showed that the confirmed 2nd pillar pension funds system model is well-balanced. The chosen amount of contributions to private funds will not be an unbearable burden for the State, and contributions will be significant enough to ensure that the future retirement pension of Lithuanian citizens will be a large part of their income," says Vilius Sapoka, Director of the Financial Services and Markets Supervision Department of the Supervision Service of the Bank of Lithuania.

The research, based on mathematical models, also revealed that the size of future pensions will depend largely on whether a person will add additional funds. Having done so, a person would receive government stimulus, and, depending on their age and professional experience, could expect a 15-34 per cent larger retirement pension. However, active participation in the 2nd pillar pension fund system can be very risky for individuals who have less than 7 years left till retirement age.

According to the calculations of specialists at the Bank of Lithuania, if all present participants in the 2nd pillar pension fund system decide to pay additional contributions, the State's contribution to the system in 2014 would amount to LTL 200 million (EUR 57.9 million). In later years the State's involvement would increase, however, in 2036 the 2nd pillar pension fund system would have paid off, i.e. support of the 2nd pillar pension fund system would become cheaper than that of the pension fund system without private accumulation.