Latvians facing poverty in old age

  • 2008-07-30
  • Staff and wire reports

BRIGHT FUTURE: Many Latvians could be facing penury in their old age if they don't save for retirement.

RIGA - A survey by GE Money Bank reveals only a fifth of Latvian residents are taking control of their future and are investing more than the state-mandated minimum required amounts into private pension funds.
Furthermore, the survey shows that up to 28 percent of residents have never given any thought to investing their earnings into the third level state pension scheme, that is, in private pension funds.
Bank spokeswoman Tija Ezerina said that about 20 percent of Latvia's residents are currently paying into some private pension fund, while 49 percent have never ventured into such investments.
One-third of residents don't participate believing that these investments are appropriate only for individuals with large salaries, while 14 percent of respondents say they are unaware if they, or anyone else on their behalf, have invested into a private pension fund.

The least likely persons to reach the third level plan, according to the survey, are women, Russian speaking residents and those living in the western Latvian region of Kurzeme.
The third level 'pillar' of the State pension plan is a self-directed voluntary option where the taxpayer can make additional investments, out of earnings, into privately managed investment funds.
The first and second 'pillars' of the State plan are mandatory defined-contribution plans, paid in by employees and employers. The second 'pillar' allows for the opportunity to have contributions managed by a professional fund manager.

Awareness in Latvia is increasing on the need to plan for one's own future financial security, rather than spending everything today.
Ezerina says that "Forty two percent of responses acknowledge the importance to begin thinking now about their pensions and that the best time to plan is between the ages of 26 's 40, when one's career is stabilizing and certain income levels have been reached."
She adds: "Thirty eight percent of the respondents believe that one should start thinking of providing for their old age as early as 23-25, immediately upon finishing studies and beginning with a work career."
Though reports of the survey indicate one fifth of the respondents say they are paying into private pension funds, data from the funds committee at the Commercial Banks Association of Latvia show that five open private pension funds of Latvia had 150,400 customers, just 12.4 percent of the economically active population of Latvia.

In the overall third level plan, which includes five open and one closed pension fund under 18 plans, there are 162,800 participants, 13.4 percent of the economically active population. The total savings at all pension funds is 70.2 million lats (99.9 million euros), about 3.3 percent of Latvian GDP.
"In other eastern European countries like Hungary, such payments are made by 27.4 percent of residents (65.1 percent of economically active residents). In Poland the figure is 35.3 percent (79.6 percent of active residents) and in the Czech Republic it is 39.5 percent (81.4 percent)," Ezerina said.
The pollster GFK CR Baltic performed the survey in May, questioning 1,386 respondents aged 18 - 65 in Latvia.