VILNIUS - Two banks, two insurers and a financial brokerage have been given the
go-ahead for the establishment of the first private pension funds in
Lithuania.
Licensed companies and banks have been given the green light to conclude
agreements with local residents on investments into a particular cumulative
pension fund.
Vilniaus Bankas forecasts that nearly 40 percent of Lithuania's employees,
bound by a mandatory social insurance system, may opt for making investments
into private pension funds by the end of this year.
Up to 200,000 residents may invest into private pension funds in the first
year of operations.
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 now going to the state-run social
insurance fund, Sodra, can be channeled to pension funds or life insurance
companies on a voluntary basis.
In the first year of the reform, employees would 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 is
contributed by employers). This rate will be increased by one percentage
point annually until it reaches 5.5 percent in 2007.
