Young People Left Without Pensions: The Fate of Citizens' Pension Savings Discussed in the Latvian Saeima 0 27

Let us remind you: deputies from this faction proposed to provide an opportunity for Latvians to choose (fully or partially) their savings in the second pension level if they wish. The bill also stipulated that the government should inform residents in detail about all the pros and cons of the decision to choose savings.

Borrowed and Paid for It!

Here’s what one of the authors of the initiative, Deputy Edmunds Zivtiņš, said from the podium:

"I would like to emphasize that this principle of returning the second-level pension on a voluntary basis for people who earned this money is a principle of justice.

A total of 1,300,000 people participate in the second pension level. The total savings exceed 10 billion. And it gets very interesting. A year ago, I didn’t even know that such a situation could exist – I lend someone money and I also pay them for managing my money!

So, to understand, we entrusted our savings to various financial structures – mostly foreign banks. We entrusted the money earned by people, for which each of these individuals has to pay from 0.2 to 0.4 percent annually. The total amount of interest payments is approximately between 30 and 40 million. These are paid by people to the funds that manage stable money. At the same time, the funds are not obliged to report; they bear no responsibility for the decline in income from the huge accumulated amounts.

All the risk is borne by the residents themselves. This is unfair, and it does not improve the security of the system. It does not strengthen, so to speak, responsibility and trust in the state and the pension system.

So, what do we propose? We propose not to destroy the second pension level; on the contrary, to liberate it and evoke greater trust in it. That is, a person will be able, if they wish, to withdraw all their savings. If they want, they can withdraw only part of the second pension level. If they want, they can leave it untouched and continue to save. And fourth – if they withdraw all or part of it, in any case, starting next month, the second pension level continues to accumulate and improve.

The Bank of Latvia and various financial experts say how good this system is. If it is so good, then I assert that no person will choose to withdraw funds from the second pension level because the system is good, and all people trust it. They will leave their money there.

If people have the opportunity to withdraw funds, then they, for example, will be able to pay off their mortgage, cover medical expenses, I don’t know, fix their teeth, or something else. They will be able to pay for their children’s schools."

"We Need to Think About Future Pensioners Too"

As the main opponent of the "liberators" of pension savings, the chairman of the parliamentary faction "New Unity" Edmunds Jurevics stated:

"I have indeed been lucky in life because I had young parents. And I saw not only my grandparents but also my great-grandparents. Unfortunately, in my early youth or even childhood, I saw that my grandparents received very small pensions during the occupation. I would never want my parents to receive small pensions. Our parents, grandparents, and all working people deserve decent pensions. In this Saeima, we have done a lot to help current seniors – we raised the non-taxable minimum, increased the amount of indexing... This is our respect and responsibility towards pensioners.

But we, the parliament, must think not only about the next elections but also about future generations and future pensioners. If we supported this populism, it would mean that future pensioners would be at much greater risk of poverty. We cannot allow that. The proposal is this: if the house is cold, then colleagues suggest setting fire to the roof and warming up for a while. But in the following years, these people, unfortunately, will freeze.

Colleagues, are any changes needed in the management of the second pension level? Of course, and we have done that. For example, commissions for commercial banks have been significantly reduced. In the coming years, over a hundred million will remain in the hands of people, rather than filling the banks' profits."

Not to Repeat Neighbors' Mistakes

A more neutral position was taken by the deputy from the National Alliance, Arturs Butans:

"If we want the engine to work, then to make it work better, it needs to be improved, regulated, not called everyone to dismantle it into parts. I do not rule out that the proposal submitted today may be tempting for many. Including those who believe they could invest individually with greater returns. And I do not rule out that such people exist. However, our task as legislators is to assess the impact on society as a whole and evaluate the risks.

In 2021, the Estonians already took such a step. We always love to listen to the Estonian experience. But in this case, the experience of Estonia is essentially critical. The Prime Minister of Estonia urged Latvia not to follow this example, not to make mistakes, as a significant part of society withdrew their savings, did not invest in alternative earning options, but spent it on consumer goods. As a result, there were neither savings, nor earnings, nor an increase in pensions..."

When the Ruling Parties Waver...

In any case, the idea of withdrawing pension savings is currently "on hold." The proposal to exempt parents of three or more children from income tax was also rejected.

But it is clear that this is just the beginning – the opposition will continue to push such initiatives again and again in the hope that as the elections approach, someone from the ruling parties will waver. In this sense, the weakest link is the "Green Farmers," who, according to rumors, may later support the distribution of pension savings.