Government may implement pension cuts

  • 2009-07-08
  • By Nathan Greenhalgh

BAD TO WORSE: Pensioners, who have already faced some of the lowest payments in Europe, may see their incomes slashed further.

VILNIUS - Before the economic crisis set in, life was already difficult for Lithuanian pensioners. And if the government's latest proposal goes through, it could get harder.
Lithuania may follow neighboring Latvia in reducing old age pensions. According to the Ministry of Social Security and Labor, the average old age pension in May was 812 litas 's about one-third of the average monthly wage. This is already about 20 percent lower than the replacement rate in Western Europe.

The old age pension is intended to be the primary salary of elderly Lithuanians, but Povilas Sigitas, a spokesperson for the Lithuanian Pensioners' Union, said it is not enough to get by on.
But with state coffers in the red, the monthly pension, typically mailed in cash, may drop further. Prime Minister Andrius Kubilius has been quoted as saying a 5 percent reduction may be needed to help the state reduce its budget deficit, which continues to balloon despite the tax hikes and spending cuts instituted in January.

"We need to consolidate our state finances. Overall we need to get 8 billion litas until 2011," Mykolas Majauskas, an advisor to the prime minister, told The Baltic Times.
"Basically we need to look at a set of measures to ensure that we reduce the fiscal deficit to sustainable levels and levels that won't increase our central government loan to extortionate levels and to get to the Maastricht criteria," he said.
Kubilius has cited a World Bank report that was critical of Lithuania's current pension scheme as an impetus for changing the current set-up. However, Majauskas said this isn't a main motivator for reform.

"The World Bank has its own story and its own mission, and Lithuania has it's own," Majauskas said. "We're not living by the World Bank's rules, but the World Bank did a good study and we also had the IMF and EU Commission here. We're not only looking at the expenditures as such but also the structures."

No exact proposals have been released yet, and Majauskas could not say exactly how much pensions would be lowered or how much money the government could save from such a measure.
Any pension reduction plan may spark protests. The Lithuanian Trade Union Confederation has come out strongly against reducing pensions and has promised protests if the measure is put forward.
"Pension reduction is not the only way to balance the budget," Danute Slionskiene, Lithuanian Trade Union Confederation international secretary, told TBT.

However, should Lithuania begin cutting pensions, it would only be following the example of its fellow Baltic states.
Estonia decided to freeze second-tier pensions in spring. Meanwhile, Latvia is implementing a 10 percent cut on the benefits of retired pensioners and 70 percent on those currently employed.