The Constitutional Court of Latvia recognized as constitutional the decision to temporarily reduce contributions to the second pension level and redirect part of the funds to the state pension system. The court concluded that such a measure helps maintain a balance between the interests of current and future retirees.
The Constitutional Court (Satversme Court) has put an end to the dispute surrounding changes to the pension system, which have sparked intense discussion among politicians, financiers, and representatives of the pension industry.
The court recognized as constitutional the provision that from 2025 to 2028, one percentage point of mandatory pension contributions will be temporarily redirected from the second pension level to the first.
Thus, the current arrangement will remain in place, and the changes adopted by the Saeima will remain in effect.
In considering the case, the court assessed whether the temporary redistribution of contributions violates residents' rights to property, social security, and legal certainty.
Ultimately, the court concluded that the measure has a legitimate purpose and serves the public interest. The ruling emphasizes that the redistribution of funds increases revenues to the special pension budget, from which pensions are paid to current retirees.
At the same time, the structure of the pension system remains unchanged.
What is important to know: the second pension level is neither abolished nor frozen. Residents will continue to accumulate savings in both the state and the funded pension levels. Only the distribution of part of the contributions changes for a limited period.
The court also noted the reasons for the adoption of the changes. In its assessment, the measure was related to the reform of labor taxation, which increased incomes for approximately 95% of working residents.
Additionally, nearly half of retirees received additional support due to the increase in the non-taxable minimum for retirees from 500 to 1000 euros per month.
According to the court, the temporary increase in revenues to the pension budget will help maintain its sustainability and create an additional reserve for future payments. The ruling specifically notes that during the consideration of the case, no evidence was obtained that the temporary reduction in contributions to the second level would significantly decrease the amount of future pensions.
The court also indicated that the measure helps maintain a surplus in the pension budget, which can be used to finance pensions at least until 2050.
Nevertheless, the decision remains controversial.
During the discussion of the amendments, representatives of the financial sector, the Bank of Latvia, pension fund managers, and the Financial Industry Association opposed them. Critics warned that reducing contributions to the second level could decrease the volume of long-term investments in the economy and undermine public trust in the pension system.
These arguments were cited by deputies of the "United List" and the National Alliance, who appealed to the Constitutional Court. They argued that the state did not provide sufficient calculations regarding the impact of the changes on future pensions and the sustainability of the system in the long term.
However, the Constitutional Court did not support these arguments.
The court's decision is final and not subject to appeal.
