Missed both the economic assessment and the objective
Prof. Tadas Gudaitis, Head of the Lithuanian Association of Investment and Pension Funds, missed the economic evaluation and the objective of the second pillar of pensions.
„We need to talk about how much this reform will increase pensions in old age. The proposed changes will certainly not increase pensions. People are told that they must expect a pension from Sodra and do not need an additional source, i.e., they take their accumulated pension from the fund in advance. <...>
The experts make it clear that getting a decent pension in old age must come from several sources and that you must prepare for retirement throughout your working life. We are going the opposite way – without numbers and goals,“ Gudaitis criticised the proposal to reform the second pillar of pensions on Žinių Radija's programme Dienos Klausimas.
The window should be turned into a door
SADM has proposed that those not satisfied with the changes in the accumulation conditions should be able to withdraw from the second pillar. This would be done by a transitional period of 21 months from 1 January 2026 to 30 September 2027. Upon request to withdraw from the second pillar, the decision should be implemented within 3 months.
Those who decide to withdraw could withdraw their contributions with an investment return. The funds contributed by Sodra from the state budget would be transferred to Sodra as additional pension units, thus contributing to the individual's share of their future pension.
However, pension funds and banks fiercely criticise this proposal, arguing that it will unbalance the whole system. They also point to the example of Estonia, where second-pillar pension funds were opened at the beginning of 2021, and Estonian citizens who had saved for their retirement in these funds were allowed to withdraw their accumulated funds. Around one-third of the participants did so.
Prof. Romas Lazutka, an economist at Vilnius University, did not dramatise the situation and assessed the SADM idea from the client's perspective. He believes that it is a private matter whether or not to accumulate pensions in the second pillar and that it is up to the individual to decide when to withdraw.
„This window is too small. The door should replace the window – they could leave when they want. It is an additional measure, so the regulation should not be so strict. It's similar to education. We have compulsory mainstream education and freely chosen extracurricular activities. It is the same with pension saving – whoever wants to participate and for as long as they want to.
If a person has decided to save extra, but his financial situation has changed: he has become richer or, on the contrary, has lost his income, he should be let go because it is no longer worthwhile to save for his pension,“ said Lazutka.
He believes that Sodra's pensions are among the lowest in the country, partly because the state does not invest enough in them. He said the state has diverted EUR 300 million from Sodra to private funds this year.
Reforms do not inspire confidence in the system
Inga Ruginienė, Minister of Social Security and Labour, said that she herself does not save money in the second pillar of pension savings. When asked what the aim of reforming the pension savings system once again is, she stressed that the only goal is to promote confidence in supplementary pension savings.
„We want people to feel that they are masters of their money. In this case, we are proposing a liberal regime,“ Ruginienė justified.
She also explained that the aim is to strengthen the current accumulation system so that the state will continue contributing to the funds paid by savers.
However, Jonas Dirginčius, Chairman of the Board of the Association of Pension Fund Participants, retorted that it is the stability of the system that builds trust, not its changes and that the second pillar of pension accumulation is subject to more or fewer changes every year, which increases clients' scepticism.
„The vast majority of dissatisfied customers are not those who are saving and do not want to save anymore, but those who are saving, have retired and were told to buy an annuity. Nothing has changed for these people. The obligation to buy an annuity, i.e., an insurance service, has remained the same, but only the thresholds have changed when it is compulsory.
If we want to increase confidence in this system, let us not oblige people to buy some insurance or other service at the end of the pension saving period. If they do not want an annuity, their accumulated money should be paid out in a lump sum,“ said Mr Dirginčius.
However, Ruginienė disagreed with the Chairman of the Board of the Association of Pension Fund Participants, arguing that many people who are still far from retirement do not enjoy the return on the money invested in the pension fund.
SADM Minister was also not convinced by the speeches of pension fund representatives that the window of opportunity for withdrawing from the pension funds is too large. „Now the pension funds have to roll up their sleeves and show how well they are doing, and they have to convince people to stay,“ she retorted.
Representatives of pension funds, for their part, worried that if a large number of clients want to leave at the same time and the state obliges the funds to pay people within 7 days, they will not be able to do so.
„The bigger risk is not the period within which people can express their wish, but the period within which the funds must comply with their wish and pay out the money. The current proposal does not reflect this in any way,“ Dirginčius said.
Minister Ruginienė reminded that once a client's request is submitted, it must be processed within 90 days.