Ageing in Latvia Doc. Staņislava Titova Asoc. prof. Inese Mavļutova Ieva Aleksandraviča Larisa Daukste Linda Krievāne Santa Novikova Kristīne Starte Maija Zieds - Ziediņa Doc. Staņislava Titova Asoc. prof. Inese Mavļutova

Content CONTENT Population Pension system in Latvia Statistic data Solidarity principle Conclusions and recommendations

POPULATION

POPULATION CHANGES IN LATVIA Year Natural increase + Net migration 2007 -10 290 2008 -9 450 2009 -12 790 2010 -18 624

Population pyramide POPULATION PYRAMID

PENSION SYSTEM IN LATVIA

REASONS OF REFORM OF PENSION SYSTEM IN LATVIA Pension system existing in Latvia while it was a member of USSR (till 1991) was created for planned economy The pension amount depended on working experience and average salary in the country, but not on the amount of social security contributions Low retirement age and ageing of population

THREE-LEVEL PENSION SYSTEM First – state mandatory unfunded pension scheme Second - state mandatory funded pension scheme Third – private voluntary pension scheme.

PENSION PLANS FOR 2ND AND 3RD LEVELS Conservative Balanced Active Age < 10 years > 10 years > 20 years Investment 100% of funds is invested in fixed income financial instruments ( bonds and bank deposits) 25% of funds is invested in the stocks of local and foreign companies 75% of fundsis invested in fixed income financial instruments 40% of funds is invested in the stocks of local and foreign companies 60% of funds is invested in fixed income financial instruments

THE TOTAL SOCIAL INSURANCE CONTRIBUTIONS FOR PENSIONS - 20% OF ONE’S SALARY Year 20% from salary 1st Level 2nd Level 2001-2006 18% 2% 2007 16% 4% 2008. 12% 8% 2009 2010 2011 2012 from 2013 14% 6%

PENSION SPECIAL BUDGET Budgetary resources consist of: contributions for pension insurance dividends from the state pension special budget transfer of shares and the proceeds from their sale other income Special budget is used to finance following items: According to the Law "On State Pensions" provided social insurance services: ageing, disability and suvivorship pensions SSIA (State Social Insurance Association) expenses related to the administration

STATE PENSION SPECIAL BUDGET FOR 2011

STATE PENSION SPECIAL BUDGET, MILLIONS LVL Year Incomes Expenses Difference 2008 1017,8 880,6 137,2 2009 810,4 984,9 -174,5 2010 902,4 1147,9 -245,5 2011 948,6 1098,1 -149,5

MINIMUM PENSIONS Woking years LVL EUR < 20 49,50 71,06 21-30 58,50 83,98 31-40 67,50 96,90 > 41 76,50 109,82

STATISTIC SHOWS REALITY

BIRTH AND DEATH Number of births (average) 22156.75 Year Natural increase 2007 -9 648 2008 -6 908 2009 -8 090 2010 -10 712 Number of births (average) 22156.75 Number of death (average) 30996.25

WORKING AGE TOTAL Under working age (0-14) Working age (15-61)   TOTAL Under working age (0-14) Working age (15-61) Over working age (62+) 2010 2,248,374 13.75% 66.03% 20.22% 2011 2,067,887 14.11% 64.12% 21.77%

UNEMPLOYMENT UNEMPLOYMENT RATE % 2006 2007 2008 2009 2010 2011   2006 2007 2008 2009 2010 2011 Unemployed residents 5 4.5 5.8 12.8 13.9 14.5

LONG TERM MIGRATION Age 2007 2008 2009 2010 20-24 -40 -303 -403 -1041 25-29 -103 -541 -832 -1625 30-34 -83 -399 -779 -1272

LIFE EXPECTANCY

AVERAGE PENSION

EARLY RETIREMENT Allowed two years before real retirement age – currently from the age of 60. Social security must be at least 30 years. Working persons do not receive early retirement pension Advantages in the social contributions: For employee from 11% to 9.5%, For employer from 24.09% to 20.8%.

EARLY RETIREMENT EXAMPLE   For persons without early retirement, EUR For persons in early retirement, EUR Brut salary 653,1 Untaxed minimum 64,03 Social contributions paid by employee 11% 9,50% 71,84 62,04 Income tax 25% 129,31 131,76 Net Salary= 451,95 459,3 –Social Contributions paid by employee – income tax)

SOLIDARITY PRINCIPLE The First pension level Influencing factors and potential solutions Social activities and additional support

FIRST PENSION LEVEL The first level of the pension system is mandatory state non-funded pension system. The first level of the pension system ensures pensions for all who have been socially insured for at least 10 years. Insurance period < 10 years, person has been granted state social security benefit. 

The First pension level Solidarity of generations Working population Generation of pensioners Women’s pension period Men’s pension period Gender solidarity

SOCIAL ACTIVITIES AND ADDITIONAL SUPPORT Clubs for elderlies – communication, singing, traveling, sport activities, knitting etc. Corporate social responsibility – Merrild coffee, innovative ideas TV campaigns Discounts – public transport, pharmacies, optics, theatre, opera, museums etc. Care homes

Eldery people also want to eat every day!

INFLUENCING FACTORS AND POTENTIAL SOLUTIONS Unemployment Salaries Retirement age Death rate Birth rate Migration

CONCLUSIONS Latvian pension system involves two obligatory levels and one voluntary level. Subsistence minimum shows that theoretically living costs should be covered, but practically it is not enough. Elderlies can participate in different activities and in some special occasions – get additional social support.

Conclusions - Recommendations The negative natural increase and long-term migration cause serious threat to the pension system of Latvia. Government should carry out changes to stimulate the increase in birth rates and to motivate citizens to stay

Conclusions - Recommendations State pension special budget cannot provide all of the current needs; it is necessary to either increase income or reduce expenditure. To balance the tax burden, diverting larger share of all tax incomes to social needs, which is very important after recovering of global financial crisis.

Conclusions - Recommendations Solidarity principle does not work effectively because of economic situation in Latvia and in the future it seems to get worse because of demography. To reduce the lack in social pension special budget government should accept changes in tax legislation which could be done if a greater part of tax income could be redistributed to social sphere. To increase the birth rates in Latvia the government should create pleasant and secure environment for new families. This could be done both with providing sufficient social benefits, and taking care of environment adapted for mothers and children.

Paldies par uzmanību! Thank You for Your attention!