President signs pension system changes into law
Lithuanian President Dalia Grybauskaitė on Wednesday signed 26 amendments paving the way for the implementation of the pension accumulation reform, endorsed by the Seimas, as of the start of the next year.
According to the president, the changes will allow increasing state pensions not only for people now receiving lower pensions but also for all existing pensioners, the presidential press service said.
Grybauskaitė also underlined that the government needs to properly prepare for the implementation of these decisions and explain to people the essence of the changes for all of them to be able to evaluate their voluntary choice opportunities.
The adopted amendments will stop the transfer of part of the social insurance SoDra's contribution to private pension funds. They will also change the private pension accumulation formula and make the SoDra the only payer of pension annuities.
Those accumulating their pensions in private pension funds will be given the right to stop such accumulation over the first half of 2019 and return to the state-run SoDra by tranferring the accumulated amount back to the SoDra system or leaving the accumulated amount in their pension funds.
As of January, 2019, all under-40-year-olds accumulating and not accumulating their pensions will be automatically included into the accumulation system with the right to refuse.
The reform's supporters say it will help to put the pension system in order, separating private pension accumulation from its accumulation in the social insurance fund SoDra. And critics say it will only make the situation for future pensioners worse.
The planned automatic inclusion of workers into the II-tier pension accumulation has also come under criticism, and some critics are skeptical about making the SoDra the sole payer of annuities.
Under the amendments, residents will transfer 3 percent of their monthly salary to private pension funds, and the state will add 1.5 percent from the average monthly salary in the country.
To create favorable conditions for residents to provide funds for private pension accumulation, the SoDra contribution and the personal income tax rate will be reduced by 1 percentage point.
The changes also stipulate a new procedure for involving residents in the accumulation of their pension in II tier pension funds would also cut the deductions for pension accumulation companies.
Under the plan, the SoDra would become the centralized annuity payer as of 2020 (currently, life insurance companies provide pension annuities).