Indexed pensions may not help Lithuanian pensioners, whose payouts are among Europe’s lowest

A senior citizen in Vilnius
DELFI / Mindaugas Ažušilis

The legal amendment for indexed pensions, however, has been put before the Seimas (parliament), which will only resume work in its spring session (which begins in March). In the mean time, financial analysts have supported the indexing mechanism, but have also warned that it will not create much welfare for pensioners. There are a few reasons for this.

Senior citizens are on the verge of a lawsuit due to their small pensions. Pensioner Ona Rimkienė is suing for a larger pension because, as she claims, the pension given to her by the state does not allow her to live with dignity. This is the first such case in Lithuania, though it may not be the last. Lithuania’s pensions lag behind not only Western Europe’s, but those of the other Baltic statesEstonia and Latvia – as well. As of last year, the average pension in was €371 in Estonia, €288 in Latvia and €247 in Lithuania. The prime minister has stated that this difference was caused not by a lack of interest in increasing pensions, but by the Conservative party’s cuts in 2008, which were passed in a night session along with tax reforms during the economic crisis. According to Butkevičius, pensions should change next year if the Seimas approves the amendment calling for indexed pensions. This would approve a mechanism for automatic pension growth in step with economic growth. Senior citizens’ pensions would grow as wages grow.

“Given that wages have been growing by 5.5 percent, I think that we can soon predict that, within three years, they certainly won’t be any smaller than 5.5 percent, but they may be higher. Pensions could grow by 6 to 7 percent,” said Butkevičius.

“Average wages used to depend on the economic situation, and they grew when there were actual reasons for them to grow, while senior pensions were usually increased in the second half of a term, when the elections were drawing closer. People had to make a show for the elections. So, of course, this isn’t an economic method for regulating pension sizes, and it often causes all sorts of twists. In this case, I believe that average wage growth in the future will be logical and based on economic realities,” said SEB Deputy President Gitanas Nausėda.

Said economic realities, at least until 2018, seem to be positive. According to the Ministry of Finance‘s predictions, wages will grow by 6-6.8 percent annually. Economists agree that pension indexing is a useful and necessary mechanism, though there also shouldn’t be any illusions that the move will solve the country’s financial problems, improve seniors’ well-being or increase their purchasing power. It is said that the indexed pensions will simply create a transparent system that will ensure that the country will not dive into further debt in an effort to attract voters.

“I don’t want to be the bringer of bad news, but there is little hope that pensioners’ situations in Lithuania will improve in the future. For pensioners’ incomes to increase, social insurance payments have to increase with the increase of either average wages or of employment. Average wages will start to grow by 5-6 percent per year, but employment in Lithuania will soon start to fall not because of the bad economic situation but because the number of working-age young people is falling quickly, and fill fall even more quickly in the future,” says Swedbank economist Nerijus Mačiulis.

Projections indicate that, due to emigration and an ageing populace, the number of working-age people in Lithuania should decrease by about half a million by 2030. This is why, according to Mačiulis, the state will still only be able to offer a minimal pension despite its indexing measures. Of course, there are ways to solve these problems – by extending the pension age or attracting labour from abroad – but neither of these measures are very popular, so several years will probably pass before anything is done.

According to former Vice-Minister of Social Security and Labour Audrius Bitinas, indexed pensions are just one non-essential way to increase pension growth. “We must invest more into employment policies and encourage not just youth employment, but senior citizen and older people’s employment as well. When they receive, or know they will receive, a smaller pension, they could spend more time in the work force,” said Bitinas. According to him, some countries offer part-time work to senior citizens as a way to keep them in the work force for longer and to supplement their pensions. He also believes that people should be encouraged to independently manage their retirement, so developing motivating supplementary pension aggregation measures like private pension funds and life insurance is also important.

Almost 600,000 people currently receive pensions in Lithuania. 40 percent of those who receive old-age pensions receive sums not much larger than €258. This is €17 more than the poverty level in Lithuania.

You may like

Be the first to comment

Leave a Reply

Your email address will not be published.