Pension reform in Lithuania

  • 2003-07-10
  • Baltic News Service

The Lithuanian Parliament passed on July 4 a package of laws establishing a legal framework for channeling part of mandatory state social insurance contributions to private pension funds.
The legislature adopted the government-drafted laws on pension accumulation and additional voluntary contributions and is expected to vote on amendments to another 11 laws related to pension reform.
The lawmakers, however, turned down a proposal to ease advertising restrictions that are applied to private pension funds, pension fund management companies and their services.
Deputy Speaker Gintaras Steponavicius strongly criticized lawmakers for backing a provision to use taxpayers' money to fund promotion of private pension funds and their services.
Under the law, pension funds can be penalized with fines of up to 100,000 litas (28,986 euros) for violation of the advertising rules.
The law on pension reform allows the current pay-as-you-go system to function alongside cumulative pension funds.
Starting Jan. 1, 2004, part of payments currently going to the state-run social insurance fund, Sodra, can be channeled to pension funds on a voluntary basis.
In the first year of the reform, employees will contribute 2.5 percent of their income to cumulative pension funds, which amounts to an employee's mandatory insurance contribution under the current system (the rest being contributed by employers).
This percentage rate will be increased by 1 point annually until it reaches 5.5 percent in 2007.