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Monday 24.07.2017 | Name days: Krista, Kristiāna, Kristiāns, Kristīne

ERGO: 1st-tier of pensions hardly to ensure subsistence minimum

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Baltic news, News from Latvia, BNN-NEWS.COM, BNN-NEWS.RU

Deniss Sazonovs

It is unlikely Latvia could abandon a pension system as such, however, the first tier of pensions could hardly ensure the subsistence minimum in future, Deniss Sazonovs, ERGO board member, told the business news portal BNN.

How big is ERGO market share?

Life insurance market share of ERGO Life Insurance SE Latvia branch accounted for 20% in late 2010. This ranks ERGO among the leading market players.

As opposed to risk insurance sector, life insurance market has been growing gradually over the past year in Latvia and the Baltics in general. If it was non-life insurance that showed better performance before the crisis in 2006-2007, now its life insurance sector that is expanding and we forecast it will grow 15% yearly in the coming years.

Do you agree to the social anthropologist Roberts Kilis that Latvia will abandon the pension system as such?

Discussions on the sustainability of the pension system are topical for sure, however, I believe it will not be abandoned completely. There will be huge changes as to the amount of pensions.

Generally speaking, there are a couple of reasons that raise fear about the sustainability of the pension system. First of all, the the number of tax payers has been dropping significantly, secondly, the shadow economy’s proportion is huge as well. Neither are there any signs it could shrink in near future. Moreover, the demographic situation is also sluggish, as birth rates keep falling while the proportion of pensioners is climbing.

This means people should be ready the retirement age will be raised, as there are no resources to increase pensions, given the fact that consolidation and the sovereign debt repayment are already carried out at the expense of the social budget.

Will people’s personal savings play a major role in future?

It is forecast already now those residents of Latvia whose income does not exceed the average monthly wage (about 465 lats) will receive not more than 50% of the monthly remuneration in pension payments. This applies to official income only, of course, thus it is already clear that pensions will not be big enough.

Third tier of pensions is the only key to ensure welfare. These are savings accumulated during working years. However, more and more people have started to save and, hopefully, this tendency is ongoing.

How big savings do Latvians make monthly?

ERGO data on the average yearly savings per a private person show it was about 258 lats, which means the average monthly sum accounts for 21.50 lats or 6-7% of the income.

People aged over 35 make savings most often and the key reasons for doing that are still the same – wedding, baby arrival, and credit liabilities. Their average income hits about 500 lats a month.

136 947 persons in total in the Baltics have purchased ERGO accumulated life insurance.

What impact did the crisis have on the saving habits of people in Latvia?

They did realize savings are crucial, that’s for sure. It is clear that it is more difficult to find free resources to save up during the crisis. According to ERGO and DnB Nord bank survey in late 2010, 70% of people in Latvia had not made any savings before the recession, which explains why the welfare of them was hit so dramatically.

Does the attitude towards savings differ among Latvians, Lithuanians and Estonians?

Despite, ERGO study shows 48% are not ready to make any savings at all, people now realize that making savings is practically the only way to ensure pension days and survive critical situations.

It is also crucial to point out that people’s thinking that a big salary is necessary to make savings is wrong as well. Practically, it is enough with 15 euro monthly payment. The earlier the person starts to save the better.

What are your forecasts for 2012?

ERGO first half-year estimate shows life insurance market keeps growing. Moreover, it is with great future prospects on both Latvian and the Baltic level.

Processes going on in the state such as the pre-election atmosphere, social budget cuts and other factors allow to expect dynamic years.

Moreover, there will be tougher competition in market shares redistribution and clients attraction. Similarly as last year, the insurance sector will keep consolidating processes as well and seek for ways to boost efficiency alongside with optimization of resources, so that investments bring maximum return.

 


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  1. Bil says:

    He has some good points.

    Thumb up 0 Thumb down 0

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