VILNIUS - The passage of a recent pension reform bill that will allow Lithuanians to invest their retirement funds with private companies has caused the country's financial institutions to scramble for potential customers.
On July 4 the Seimas (Lithuania's parliament) finalized a law that will allow the country's workers to begin designating a certain proportion of their monthly income that would normally be transferred to Sodra, the state social insurance agency, to private pension funds.
Workers who sign up for approved pension plans by Dec. 1 of this year will be eligible to have up to 2.5 percent of their monthly income transferred to the fund of their choice in 2004.
That level will then rise by one percentage point each year until reaching a maximum of 5.5 percent by 2007, although would-be private pensioners must sign up for a plan by May 1 of the year preceeding the first year they would make contributions.
"However, not all workers will be eligible for the reforms," said Vitalijus Novikovas, director of the pension system reform department in the Ministry of Social Insurance and Labor.
According to Novikovas, a large portion of the workforce that receives its wages by authorial contract or from self-run businesses as well as farmers will not be able to participate in the program.
With the prospect of clients eager to ensure their financial future, banks and companies offering life insurance are rushing to develop products and meet the application deadline for receiving a license, which the government has set at Aug. 31.
"We hope to be offering three products targeted at different client profiles," said Aurimas Mazdzelius, director of investments for Hansabankas in Lithuania.
"The first fund would consist of money invested 100 percent in securities issued by EU and OECD governments. The second and third funds would invest 20 and 40 percent, respectively, in corporate stocks, the rest being put in government securities," said Mazdzelius, who emphasized that Hansabankas could not confirm the composition of the funds until it received a license.
Finanacial strategists at other institutions were less forthright about their plans.
"Every company has its own goals," said Zilvinas Grigaitis, marketing and communications director for Commercial Union, one of Lithuania's largest life insurance providers and which is also planning to create a pension portfolio.
"We believe that the companies that will be successful in the end will be those that quickly develop a business plan that fits their capabilities and that successfully market their product so that customers find out about them in time," he said, referring to this year's Dec. 1 deadline for customers to choose a plan for their 2004 investments.
Vilniaus Bankas, a member of the SEB Group and Lithuania's largest bank, has announced ambitious plans for a 40 percent market penetration.
"It is important that institutions that want to get into the market prepare quickly and well," said Saulius Radcevicius, director of VB Investment Management, a daughter company of Vilniaus Bankas.
"I also think an extensive consumer-information campaign will be crucial to success," said Radcevicius.
Another question looming over the soon-to-be players in the pension game is exactly how large the market will be and how quickly the idea of handing over one's retirement to the banking sector—which only five years ago suffered widespread collapse—will catch on.
"I'd be afraid to give an exact prediction on participation in the program, but taking into account the conservative Lithuanian mentality, I think only a brave few will participate in the first year," said Novikovas.
Bankers, however, were more optimistic.
"If we look at Estonia, where pensions were privatized last year, predictions were for 10-20 percent participation in the first year, and in reality, 35 percent signed up. In the second year, the rate is 55 percent," said Radcevicius.
