Pension reform

The goal of the reform, which was started in 2003, is a transition to a three-pillar pension system based on accumulation: State social pension insurance (Pillar I), accumulation for old-age from social insurance contributions in Pillar II pension funds and supplementary accumulation for pension in life-insurance companies or pension funds (Pillar III).

  • Pillar I – Sodra (State Social Insurance Fund). Social insurance is based on the solidarity of generations – when paying contributions to SoDra, we support our parents and grandparents; when we reach our pension – our children will pay for our pensions. Social insurance contributions are paid every month and then pensions, sickness, unemployment and other allowances are paid from these contributions.
  • Pillar II – a portion of taxes paid to SoDra can be allocated to a private pension fund. Every employed or self-employed person who pays contributions for the whole social insurance pension can choose participating in the Pillar II pension accumulation system.

The social insurance pension has two parts, viz. the main part (or the basic pension) and the supplementary part. The amount of the basic pension depends only on the insurance period, and if a person has the required social insurance period, which is 30 years, he/she shall receive the full amount, viz. LTL 360. The supplementary part depends on both the insurance period and the contributions paid. When a smaller amount of contributions is paid to SoDra, only the supplementary part will decrease – this will not influence the amount of the basic pension. Also, it will not decrease for the period when you did not participate in pension accumulation. A supplementary pension part for the period of participation will be decreased according to the proportion between the accumulative contributions and contributions for the social insurance supplementary pension part. Due to your participation in the new pension accumulation system, other social insurance benefits (sickness, maternity, unemployment, accidents at work) will not change, only your old-age pension will decrease.

The contribution part for the accumulation received to Pillar II pension funds:

2.5 percent of wage – in 2004;
3.5 percent of wage – in 2005;
4.5 percent of wage – in 2006;
5.5 percent of wage – in 2007-2008;
3.0 percent of wage – from 1 January 2009 to 30 June 2009;
2.0 percent of wage – from 1 July 2009 to 31 December 2009 and in 2010
5.5 percent of wage – since 2011.

For athletes, artists, for self-employed persons or persons holding a business certificate: 1 percent – in 2009, and 2 percent – in 2010

Participants of the new pension accumulation system will receive their pension from two sources, viz. from SoDra and from private pension funds. The amount of accumulative pension depends on the amount of the contributions paid and the period of accumulation: the bigger the contributions and the longer the period, the more one can accumulate. The amount of the interest earned by the pension funds is also important; however, the interest is usually higher when the contributions are bigger and paid for a longer period.

Therefore, the total pension amount (form SoDra and a pension fund) for younger people who start to accumulate and get a higher than average salary will be undoubtedly higher than for a person who does not participate in the new accumulation system and who only receives one pension.

A spreadsheet prepared by the Ministry of Social Security and Labour will help older people and people with lower income make a decision. When entering your year of birth, present and anticipated salary and choosing the economic assumptions in the spreadsheet, one may find out the amount of his/her future pension in SoDra and in a pension fund. The spreadsheet can be found HERE.

When the participant reaches the old-age pension age, a monthly benefit, viz. the annuity, will have to be bought for the accumulated sum of money and will be paid for him for life by the life assurance company. However, if the sum accumulated by the participant is too small or if it exceeds the amount required for a big annuity, he will have an option: to withdraw some money as a lump sum or to withdraw it in instalments.

The sums accumulated in Pillar II (as well as in Pillar III too) can be inherited both during the accumulation and the payment period (please request more information when signing the payment contract). It is not possible to inherit Pillar I state pension.

Pillar III – the additional supplementary accumulation for pension in life assurance companies or pension funds, like ERGO Pension Insurance.