Pension plans to take off in 2004

  • 2004-01-15
  • By Steven Paulikas
VILNIUS - Lithuania's private pension scheme posted modest yet promising results in 2003, its first year of existence, analysts said.

Following the lead of Estonia and Latvia, Lithuania's Parliament enacted legislation last summer allowing workers to divert a portion of their social insurance contributions to a private pension plan of their choosing.
The government hoped the scheme would help avert financial disaster in the future, as the size of the work force relative to retirees continues to shrink.
During the first phase of the plan that ended Dec. 1, 2003, workers were allowed to sign a contract allowing up to 2.5 percent of their total 2004 income to be deposited with a pension fund.
According to the Ministry of Social Security and Labor, 441,606 contracts were signed last year, meaning 36.6 percent of eligible workers opted for a private pension.
"I think the numbers look good," said Vitalijus Novikovas, director of the pension reform department at the ministry.
"Our forecast was for much lower participation, around 7 percent. Of course, this was a skeptical forecast, but we are pleased that the result was much higher," he said.
While officials at the ministry were positive about the outcome of the first year, others in the industry were less upbeat, blaming the government for an ineffective information campaign.
"The message seemed to be that people didn't have to rush, something like wait-and-see. There didn't seem to be any sense of urgency about it," said Augustus Staniulis, project manager at Hansabankas.
According to analysts, the upside to anemic participation rates is the potential for financial institutions to grab more new clients in 2004.
Workers have until May 1, 2004, to sign contracts for private pension contributions in 2005, and the rush to attract future retirees is on.
"We think the numbers will go to about 50 percent participation," said Lina Balciuniene of Balto Link, a brokerage firm.
"Many of the people who wanted to take their time and think about it will have made up their minds. Because of the bank crises that many people have lived through, many people want to be sure their retirement money will be safe if they invest it. After a year of the program, they will see it is stable," she said.
As financial institutions vie for the hundreds of thousands of new contracts that will be signed before the May deadline, the biggest winners are likely to be the same ones who made out well in 2003.
"Without a doubt banks did the best. They leveraged their massive client base to get customers to sign contracts with them. Life insurance companies mostly had to go out and get new customers, which was difficult for them. And the bigger the bank, the better it did," Balciuniene said.
Lithuania's two largest banks, Vilniaus Bankas and Hansa-bankas, pulled in the largest proportion of the contracts in 2003: 30.4 percent and 30.3 percent, respectively.
"We look forward to continued growth in this sector until 2005, when we expect the number of new contracts to level out. After that, the only new customers will be people who have just entered the work force," Staniulis said.