Why does a person need a pension if they won’t live to see it? This is the main argument of those in favor of distributing pension money right now. What do opponents say?
The Example of Neighbors is Contagious
Let’s recall: the question of the fate of savings in the second pension level emerged in Latvia's political agenda at the beginning of this year. There are three reasons why this question arose.
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The first is that Estonia and then Lithuania have already adopted corresponding changes in legislation, allowing residents of these countries to "access" these savings before retirement. Yes, each of these countries has taken its own path, and there are nuances in the operation of this second pension level in each of the Baltic states — for example, in Lithuania, these are voluntary contributions, not mandatory as in Latvia.
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The second reason is that even opponents of premature withdrawal of funds acknowledge that these savings are not used very efficiently and do little to help the Latvian economy, as only 8 percent of these funds are invested in Latvian businesses.
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And finally, the third reason is the proximity of parliamentary elections! They will take place on October 3.
Everything Earned Through Hard Work
In any case, the topic was first raised by the opposition faction of the Saeima "Latvia First," and then a similar initiative — regarding the right to withdraw funds — emerged "from the people": in a short time, the necessary 10,000 signatures were collected on the portal manabalss.lv in support of this proposal.
Let’s clarify that currently, according to the legislation, a person cannot withdraw their savings from the second pension level until retirement, but this pension capital can be inherited by their closest relatives in the event of their death. And only if during their lifetime the owner of these savings specified who they want to bequeath these savings to. If not specified, they pass into state ownership!
Five Attempts to "Open" the Law
Interestingly, opposition deputies submitted bills on the topic of withdrawing savings before retirement age five times in the last three months!
Since identical bills cannot be submitted within one session if they have already been rejected once, the deputies changed their proposals each time.
At first, they proposed to allow Latvians to access their savings without restrictions, then it was suggested to allow the use of savings for specific purposes — for investing in Latvian businesses, for paying for education, for mortgages, for repaying loans...
But all in vain — the majority of the Saeima rejected all these initiatives outright, not even allowing discussions on the topic in the parliamentary committee.
Not to Die Before October
And this month, part of the opposition found an ally on this issue in the form of the Union of Greens and Farmers, which is part of the ruling coalition!
The "Green Farmers" believe that for now, it should be allowed for Latvians to withdraw part or all of their savings from the second pension level for one reason only — essentially to save lives: for surgery or for purchasing expensive and non-reimbursable medications...
It is noteworthy that representatives of the main ruling party — "New Unity" — admitted that for these purposes, that is, for treatment, it might still be permissible to choose savings, however... the ruling party will be ready to start discussions on this topic only after the elections!
Apparently, saving lives is not necessary before the elections...
We Will Take Care of You
Representatives of the Bank of Latvia and leading credit institutions in the country categorically opposed even the beginning of discussions on this topic. They use the main argument of... caring for future pensioners.
Indeed, the savings of the second pension level are considered an addition to the basic pension, which depends on work experience and is formed from contributions made by the employee and employer to the mandatory social insurance fund (the first level).
Savings from the second pension level account for about 30 percent of the accrued pension. It must be acknowledged that this is a significant portion. If a person chooses to withdraw all their savings before reaching retirement age, then upon retirement, the amount of their pension will be significantly lower.
And if the pension ends up being less than the established minimum subsistence level, then such a pensioner, having worked their entire life, will have to apply for social assistance, meaning taxpayers will have to spend money on paying, for example, their utility bills.
Not Accumulated Even a Thousand Euros
Moreover, the savings of most participants in the second pension level system are not that large. The Latvian TV program "What is Happening in Latvia" reports, citing data from the State Social Insurance Agency, that there are a total of 1,316,260 participants in the system. Of these, the largest group — 347,000 people — have accumulated less than 1,000 euros!
260,000 people have savings ranging from 5 to 10 thousand euros. 120,000 Latvians in the second pension level have accumulated between 10 and 20 thousand euros. 23,888 people have savings between 30 and 40 thousand euros, while more than 40 thousand euros have been accumulated by 19,733 Latvians.
On the other hand, such a large proportion of insignificant savings is precisely an argument in favor of those advocating for the right to access these savings prematurely. After all, if these meager amounts are divided by months upon reaching retirement age and added to the pension, this increase will be very modest — not even enough to buy medication! Considering inflation, it may become completely symbolic.
The Main Reason for All Fears
Interestingly, the staunch opponents of the withdrawal of funds are afraid to name the main reason why they oppose even the beginning of parliamentary discussions on specific changes to the Law on Funded Pensions.
The total savings in the second pension level exceed 10 billion euros. This money is not lying "dead weight" in the subsidiaries of banks or in companies managing pension funds — they are invested in various types of businesses, primarily in other countries.
It is probably unnecessary to explain what will happen if thousands of Latvians rush to withdraw these savings, which are invested, for example, in certain foreign investment funds, in the construction of offices, in stocks abroad...
It is clear that if it is not possible to open the law and start discussions on this issue before the elections, then after the elections, politicians will certainly not even remember this topic. After all, the next elections... are only in 2029 — for local governments and the European Parliament.
What About Them?
Residents of Lithuania were allowed to withdraw funds from the second level of pension savings. Hundreds of thousands of Lithuanians received their money in the first half of April. We are talking about several billion euros.
Where did this money go? Retailers have already recorded a significant increase in purchasing activity, and banks are recording spending that exceeds Christmas sales: according to payment card data, household spending was about 20% higher than a month or a year earlier, and total spending was higher than in the pre-Christmas weekends of last year.
In Lithuania, there has been an increase in demand for travel packages, household appliances, and other luxuries that future pensioners have long dreamed of but could not afford.
