Lithuanian pension system and reforms MISSOC Network Meeting Vilnius, 17-18 October 2013 2013 Ministry of Social protection and Labour

Main points of presentation Pension system: main features Pension accumulation system Changes of funded pension scheme

LITHUANIAN PENSION SYSTEM: composition

LITHUANIAN PENSION SYSTEM: first pillar Old age, disability, widows’/widowers’ and orphans’ pensions. Early retirement pension scheme (0.4% reduction for every full month remaining until the pensionable age; reduction is applied for the rest of life; max. 5 years before pensionable age), Legal retirement age will be 65 years for men and women (gradually increased from 2012 to 2026 by 2 months yearly for men, 4 months yearly for women).

State social insurance pensions for old-age The old age pension is comprised of three parts: the basic part (“flat rate”, guaranteed for everybody who has at least 15 years of contributions); the supplementary part (contributions related and calculated individually for each pensioner); bonus for the length of record (for those who has more than 30 years of contributions; “flat rate” award for each additional year above 30)

LITHUANIAN PENSION SYSTEM: pension accumulation Introduced in 2004; participation is voluntary, but with no possibility to opt out (general rule). No restrictions for participation by age (below the legal retirement age). In October 2013 – more than 1 million of participants (85 % of all who have a right to participate); State social insurance old-age pension reduced for the time of participation. Assets accumulated in pension funds: 4.4% of GDP.

What do we accumulate: contribution rate Contributions to pension funds: 2004 – 2,5 % 2005 – 3,5 % 2006 – 4,5% Since 2007 – 5,5 % (planned) BUT: Reduced during crisis: 2009 Jan-Jun - 3 % Since July 2009 – 2% 2012 – 1,5 % 2013 – 2,5 %

Where do we accumulate: pension funds 30 pension funds administered by 7 investment management companies and 2 life insurance companies: PF investment strategy Number of PF‘s Number of participants Value of assets, Conservative investment PFs 10 115 035 635,15 Small equity share PFs 4 272 640 1 324, 88 Medium equity share PF’s 11 587 632 2 596,30 Stock PF’s 5 114958 453, 30 Total: 30 1 090 275 5 011,15 Conservative investment PFs – investment in the securities only; small equity share PFs - (equity share up to up30 %), medium equity share (equity share: 30–70 %); stock PF’s (equity share: 70–100 %). Data of Bank of Lithuania

How much does it cost? Fees applied: assets fee; contribution fee Assets fee: Conservative PF’s: up to 0.65 percent of a average annual assets; other PF’s: up to 1 percent of a average annual assets. Contribution fee (reduced gradually): Contribution fee (maximum amount) is gradually decreased since 2013: 2013 – 2% 2014 – 1.5% 2015 – 1% 2016 - 0.5% Since 2017 – no contribution fee applied.

What the benefits will be? Short period of accumulation (2004-2013): 15782 benefit agreements (mainly lump sums; 122 annuities). Obligation to purchase an annuity in life insurance company when amount accumulated in pension account reaches and exceeds a sum established by law (currently 31920 LTL ( ~9245 EUR) at age of 62). One annuity provider operating in the market; Lump sum pension benefits or payment in instalments (periodical pension benefits) are possible under certain conditions.

How does it works?

LITHUANIAN PENSION SYSTEM: voluntary accumulation Voluntary accumulation can be in private funds or life-insurance companies: tax advantages. Law on Occupational pensions (adopted in 2006: implements the Directive on the activities and supervision of institutions for occupational retirement provision - IORP directive) There are no occupational pension funds currently operating in Lithuania according this law.

LITHUANIAN PENSION SYSTEM: social assistance Social assistance pensions provides minimum income to those not eligible to social insurance pensions (old-age, disability and survivors’) and financing from the state budget. Social assistance pension are income-tested, covers less than 4% of all pensioners and compose 2% of the total pension expenditures.

The reform of the pension accumulation system Changes of financing of II pillar private pension scheme (legislation adopted in 2012) Since 2014, pension contribution will comprise from 3 parts: Contributions: Year Fraction of pension contribution Additional contribution paid by member Contribution paid by state (from average wage in the state) 2014 2% 1% 2016 2020 3,5%

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