In Latvia, self-employment has long ceased to be exotic — tens of thousands of people earn independently and are responsible for their social future. However, this is where the systemic problem lies: the future pension of self-employed individuals is, on average, about 40% lower than that of employees with comparable incomes. This conclusion was reached by a study of the European Union.
Simply put, under equal starting conditions, the self-employed person risks living significantly more modestly in old age than someone who has worked under an employment contract their entire life. In Latvia, the theoretical future pension of self-employed individuals, taking into account differences in social contribution rates, is approximately 60% of what an employee would receive under comparable conditions, according to a study by the European Union.
How many self-employed individuals and what is the essence of the problem
In the fourth quarter of 2024, there were just over 48,000 self-employed individuals registered in Latvia, who earn income by working independently and make mandatory contributions to state social insurance. According to current legislation, self-employed individuals are required to make these contributions based on their monthly income from economic activities. A self-employed person can be a representative of various professions, such as a farmer, notary, lawyer, private practice doctor, micro-enterprise taxpayer, or any individual registered as an income taxpayer.
As emphasized by Atis Krūmiņš, head of the pension and asset management division at Luminor Bank, for people who have been self-employed for years, the issue of long-term financial security becomes critically important. Without personal initiative and additional savings, it is extremely difficult to expect a comfortable pension.
Contributions and minimum thresholds: what is important to know
The amount and structure of social contributions directly depend on the chosen tax regime. When paying the general rate of 31.07%, the self-employed individual receives pension, medical, as well as insurance for illness, maternity, paternity, disability, and parenthood.
If, however, the income is below the established minimum — 2,220 euros per quarter — a minimum mandatory contribution of 10% applies solely to pension insurance. These payments form both pension capital and work experience, but they are clearly insufficient for a decent standard of living in old age. In turn, for employees, the pension insurance rate is 20%.
Long-term self-employment — a hidden risk
EU statistics show that self-employment often has a persistent nature. From 2016 to 2020, about 83% of self-employed individuals in Europe maintained this status for more than a year. In Latvia, the figure is lower — about 62% — but it still indicates that this is not a temporary income, but a long-term employment model.
The paradox is that, despite active participation in the economy, self-employed individuals find themselves less protected within the social system. Irregular income, periods without contributions, and reduced payments directly impact future pensions. Even a few "empty" months a year eventually translate into a significant loss of income after retirement.
The pension system in Latvia is formally unified for all, but in practice, self-employed individuals are at a distinctly disadvantageous position. The sooner they realize this gap and start taking action — declaring full income, regularly paying contributions, and forming additional savings — the higher their chances of having financially stable and independent years after completing active work.
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