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Wednesday 24.05.2017 | Name days: Marlēna, Ilvija, Ziedone
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SEB: employed people’s expectations for alternative pension income are exaggerated

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUExpectations of Latvian residents for retirement income significantly differ from what they should expect in reality, as concluded in SEB Bank’s pension study. Expectations for higher income after retirement are based on insufficient knowledge and hopes for alternative income.

In order to secure additional income in the future, 77% of respondents intend to continue working after retiring. At the same time, they admit wanting to retire early. 44% of respondents expect family and children to help and 38% – plan to receive income from business activity. A new trend emerged this year – 45% of employed persons expect additional savings will be created for them by employers.

Chairman of SEB Life Insurance Kristina Lomanovska: «Study results show that employed people expect a higher level of income than the two pension levels can provide in Latvia. Future pensioners expect a lot, but their current actions are insufficient to secure their planned level of income. For example, savings in private pension funds are created by only every fourth resident. Respondents consider working after retiring but also admit wanting to retire early. Answers of respondents show that only one-third of them continues working in the first couple of years after retiring and usually plan to cease working at the age of 69. Hopes for employers’ aid are also exceeded – 45% of respondents consider such savings as a viable source of income. Only 8% of respondents mentioned making regular payments to private pension funds.»

According to the Latvian Commercial Banks Association, the volume of contribution of employers to private pension funds remained the same in 2015 and was EUR 9.9 million (+3% in comparison with 2014).

Social Security expert of Latvian Employers’ Confederation Peteris Leiskalns: «Employers mostly support the system aimed at increasing the responsibility for their future pension and insurance of other risks. Considering the demographic situation, it is expected that the state funded pension system will not be able to secure proportionate payments. The third pension level can help reduce the tax burden that was necessary to sustain the generation of pensions without the second and third pension levels. This is especially important because a heavy tax burden negatively affects business activity. It is highly important to develop economic sectors with high added value. This would help increase wages and provide employed persons with an opportunity to create pension savings.»

Data of the study shows that the readiness of Latvian residents for retirement remains the lowest in Baltic States. It is only 2.9 points out of the maximum of 10 points (3.3 in Lithuania and 3.7 in Estonia). In addition, the trust of residents towards the pension system and confidence about sufficient income after retirement has decreased over the course of the past year. 70% of respondents believe their financial state after retiring will not be better than the current state of pensioners. SEB Bank experts have concluded that the first and second pension level will be able to provide no more than 50% of residents’ current level of income. At the same time, residents would like their pension to be upwards of 93% of their current income.

Head of Welfare Ministry’s Social Insurance Department Jana Muizniece states: «Latvia’s pension system will be 20 this year. The transition period from full provision to individual responsibility continues to this day. The majority of work experience still relies on the current system and financial knowledge and understanding of personal involvement continue developing very slowly. Latvia’s pension system provides full reliance of the pension size on the volume of social insurance payments and participation in the second and third pension levels. Unfortunately, current actions do not meet with expectations. It is also important to consider the environment the pension system exists – the level of employment and wages, especially in regions, emigration and the proportion of shadow economy. I believe long-term creation of savings in Latvia has a good base, infrastructure and stimulating tax benefits. It is highly important to continue educating residents in pension matters over the course of their employment».

Ref: 102.109.109.6786


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