In a few decades, pensions may sharply decrease, and the number of workers will become critically low. A new study shows a troubling scenario for Latvia — and explains why changes are inevitable already now.
The aging population in Latvia will continue to increase the burden on the pension system even under optimistic demographic development scenarios, thus timely adaptation to changes is necessary, according to a study by the Stockholm School of Economics in Riga (SSE Riga).
According to the study, Latvia's population may decrease from 1.86 million in 2025 to approximately 1.34 million by 2060. At the same time, the number of working-age residents will decline from 1.17 million to about 750,000, while the number of pensioners will grow to nearly half a million.
This means that in the future, there will be only about one and a half workers for each pensioner, compared to two workers currently. Such changes will increase the financial burden on the pension system. The author of the study, Dr. Sergey Gubin, predicts that even under the most optimistic scenarios, the impact of an aging population will persist. He notes that the pension system needs to adapt in advance to ensure its sustainability in the future.
Analyzing possible development scenarios, the study concludes that even a higher influx of migrants — about 10,000 people per year — will only partially compensate for the population decline. Meanwhile, an increase in the birth rate to 1.8 children per woman will slow down the population decrease; however, the share of pensioners will still grow and may reach 35–37% of the total population.
The study also analyzed the sustainability of the pension system.
If the current social contribution rate of 20% is maintained in the first pension level, it is projected that the size of pensions in relation to the average salary may decrease from about 60% in the early 2020s to around 35% by 2060.
At the same time, savings from the second pension level may improve the overall size of pensions; however, this will require long-term investments and possibly an increase in contributions.
The author of the study notes that a comprehensive approach will be needed for the sustainability of the pension system, including gradual reforms, increased labor market activity, and economic growth.
The study "Demography and Pensions in Latvia: Forecasts until 2060" was conducted by SSE Riga on behalf of a financial group.
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