Mass early withdrawals of savings from the second level of the pension system would be a strategic mistake that would put a significant portion of future pensioners at risk of poverty, bank representatives say, according to LETA.
Angelika Dobrovolska, head of the investment management at Swedbank, notes that by the end of January 2026, the accumulated capital of the second pension level in Latvia will exceed 10 billion euros — this is one of the largest private savings in the country at both individual and state levels.
Allowing residents to withdraw funds from the second level of the pension system is a bad idea for several reasons.
Firstly, this is not "free" money — it is deferred salary for retirement. Dobrovolska emphasizes that today the whole world, including central banks and the European Commission, speaks about the need to increase real pension savings, rather than relying solely on the principle of solidarity (as is the case in the first level of pensions).
"The reason is simple — society is aging rapidly, and life expectancy is increasing. Relying solely on future taxpayers means consciously creating a budget crisis. In this regard, Latvia is ahead of many developed countries in Europe, as it requires mandatory savings from its citizens," explains the representative of Swedbank.
Secondly, the idea of "allowing everyone to decide for themselves" does not actually work, as clearly demonstrated by the example of Estonia. In 2021, Estonia carried out a reform of the second pension level for populist reasons and now acknowledges that it was a mistake. According to a study by the Bank of Estonia, after the reform, 15% of people spent money on everyday needs, 30% paid off consumer loans, and 50% left funds in accounts where they are gradually "eaten away" by inflation.
This decision, according to Dobrovolska, not only reduced future pensions but also contributed to inflation growth, as part of the pension capital was spent on consumption. This is not an individual choice — it affects the entire society.
Thirdly, behavioral economics has long proven that in matters of long-term savings, people act emotionally rather than rationally. That is why pension systems around the world are built on automatic discipline rather than free access to savings.
Dobrovolska asserts that the second-level pension savings in Latvia are objectively well-managed. The average return on equity plans over three years consistently exceeds 11–12% per year. In terms of second-level returns, Latvia ranks sixth among all OECD countries, ahead of Sweden and Denmark.
"Withdrawing funds means giving up compound interest. For example, 10,000 euros withdrawn at the age of 30, with a return of 6–7% per year, means 40,000–50,000 euros less at retirement age," explains the representative of Swedbank.
Dobrovolska believes it is more reasonable to discuss improving the conditions for second-level payouts upon retirement — for example, allowing individuals to keep savings in the pension plan and receive regular payments so that the remaining capital continues to work. It is also possible to reconsider the capital gains tax conditions and simplify the inheritance mechanism for pension savings.
Arnold Chulstens, head of SEB Life and Pension Baltic, emphasizes that the second level is an important component of a sustainable pension system designed to compensate for demographic challenges that will soon significantly impact the first level.
If changes are implemented, the pension replacement rate could decrease from the current 45–50% of the last salary to 30% over the next 10–20 years.
"This will put many pensioners in Latvia at risk of poverty, and the state will need additional resources for benefits," says Chulstens.
He emphasizes that, on the contrary, the second level should be strengthened and contributions of 6% should be restored in 2029, as promised.
He points out that the Estonian experience has shown negative consequences: increased consumption and inflation, decreased investment in the economy, while saving habits have not improved. Estonia is now trying to correct the mistake and restore the second level.
Karlis Purgailis, head of CBL Asset Management, also considers mass withdrawals of savings a strategic mistake that will harm both the withdrawers and other citizens.
"The second level is not an ordinary savings tool. It ensures long-term well-being and sustainability of the social system," he emphasizes.
Such a measure, he says, will lead to insufficient pensions in the future, increasing the burden on the state, and ultimately everyone will suffer.
As consequences, he mentions possible increases in the retirement age, reductions in pension indexing, or increases in social contributions.
Moreover, a sharp withdrawal of funds will force managers to sell assets, which will cause market fluctuations and reduce the availability of capital for businesses.
"The pension system is built on long-term sustainability. Emotional or short-term desires cannot be its foundation," concludes Purgailis.
It was previously reported that 10,000 signatures have been collected on the platform Manabalss.lv for the initiative to make participation in the second pension level voluntary. It was submitted by the unrepresented party Platforma 21 (formerly Katram un katrai), founded by Aldis Gobzems (now Arnigo Toro).
Supporters of the initiative argue that private pension funds are not obliged to preserve or increase savings, and therefore long-term losses are possible.
There is also a petition on Manabalss.lv collecting signatures for an initiative proposing to allow voluntary full or partial withdrawals of savings. Its author is Girts Bumbers, who believes that access to savings will provide people with greater financial security. About 6,000 signatures have been collected.
