The upcoming pension reform expected next year continues to fuel considerable debate. Experts emphasize that the changes will have inevitable consequences. Some argue that citizens will gain more freedom of choice and be able to decide how to use their money, while others point out that this “freedom” could in reality mean smaller pensions in the future and even greater financial risks.

While politicians who proposed the reform reassure the public by emphasizing the freedom to decide what to do with accumulated funds, economists openly admit that such decisions could worsen the long-term situation.

According to them, partial withdrawal or full exit from the system may temporarily ease daily problems for some people, but in the long run, it will create serious financial challenges for future retirees.

Experts increasingly highlight that Lithuania’s demographic trends are among the worst in the European Union – the number of working people capable of supporting pensioners is rapidly decreasing. Therefore, they argue, instead of solving the problem, today’s reforms could create an even heavier burden on both the state and individuals.

Unfavorable forecasts for the future

During a discussion on the news portal tv3.lt’s show Dienos pjūvis at the BŪTENT! discussion festival in Vilnius, Swedbank’s Chief Economist Nerijus Mačiulis noted that forecasts point to troubling trends and that alternative sources of retirement income should be considered.

“No one is saying that Sodra will disappear, but demographic projections clearly show that a decade ago four working people supported one pensioner, while even the most optimistic projections indicate that in two decades only two workers will support one retiree.

This is the worst indicator in the entire EU. We cannot ignore such trends, and we must understand that it will become increasingly difficult for Sodra to pay adequate pensions. Therefore, we must talk about alternative sources,” the economist commented.

Investor and Profitus representative Arnoldas Antanavičius agreed, emphasizing that young people should make additional investments.

“It’s a fact that pensions should not come from just one source. It has been quite good so far – people knew they would get something from Sodra and another part from personal investments.

It would be even better if people also invested in other segments to create additional passive income streams. As young people, we have time and opportunities to take responsibility for our future,” he said.

During the discussion, Chairman of the Seimas Budget and Finance Committee Algirdas Sysas expressed the view that, in addition to the planned reforms, subsidies encouraging people to participate in the second pension pillar should be abolished. Sysas argued that the system could continue to function, and those subsidy funds could instead be used to address current issues.

“If today’s pensioners received larger pensions, these discussions wouldn’t exist. But from the collective funds that could be used to increase pensions now, we are diverting money to subsidies.

If we look at who most often falls into poverty today – it’s pensioners. We could pay them an extra €33 per month right now, but we put that money toward the future, without knowing whether it will truly generate returns,” the politician said.

However, Antanavičius disagreed: “€33 taken now won’t solve pensioners’ current problems, but leaving the money where it is will ease the state’s future pension burden. Those 700,000 participants in the system will have their future covered, and the state will have one less headache,” he said.

The specialist also warned that the reform could significantly worsen people’s situation: “The withdrawal of €2–3 billion, most of which will go toward consumption, will drive up prices and inflation – and it will be the lowest-income individuals who feel it most,” Antanavičius noted.

The system should be mandatory

Mačiulis stressed that, to follow the example of more advanced countries, Lithuania’s pension accumulation system should be made mandatory, ensuring better pensions for everyone in the future.

“With the new system, responsibility is largely shifted onto pensioners’ shoulders. The biggest problem is that people with lower financial literacy and income rarely think about the future.

Therefore, we need to make the system such that it guarantees higher pensions for all in the future,” he said.

However, former Minister of Social Security and Labour Linas Kukuraitis argued that such changes face too many obstacles in Lithuania.

“We lack the political will to do what Scandinavian and Western countries have done – to make the second pension pillar mandatory for everyone.

This is a controversial issue because in Lithuania pension funds are private. How can you make something mandatory when the money goes to private funds and someone profits from it? Banks will profit from a system made mandatory by the state,” he said.

He added that a state-owned fund should be created alongside the private system. Another problem, Kukuraitis said, is that Lithuanian pension funds currently generate lower returns than the rate of wage growth – unlike in many other European countries, where fund returns often exceed wage increases.

Mačiulis acknowledged this issue but noted that wage growth should soon slow, allowing fund returns to catch up: “We’ve had a truly unique decade in Lithuania – average wages grew by 10% every year, unmatched in the EU.

Naturally, pension funds cannot generate 10% annual returns in such an environment. But I don’t think we’ll see another decade like that, as wage growth was also boosted by favorable demographics – for example, employment increased by nearly 20% over ten years,” he emphasized.

Sysas added that making the system mandatory would also require employer participation: “If employers contributed even half of what employees pay (8.72%) into the social insurance system, we could significantly raise pensions – either through the first or second pillar.

Then the system would be sustainable and could indeed become mandatory. Without these changes, we’ll just keep talking without seeing real improvement,” he said.

Mačiulis responded that some employers in Lithuania are already voluntarily saving for their employees’ pensions, and this trend is growing: “It’s not true that Lithuanian companies don’t save for their employees. There are such companies, and their number is increasing – many are voluntarily creating professional pension funds,” he explained.

What should people do with their accumulated funds?

The discussion also turned to how people unsure about what to do with their second-pillar pension savings should act.

Kukuraitis noted that the reform offers multiple options – which was also a campaign promise – and that individuals should make decisions best suited to their own needs.

“If I know I can make better use of my money than keeping it in a fund, then I should do so. If I know that returns elsewhere will be higher than those generated by funds, I should take that opportunity. If my financial situation is currently difficult, it’s logical to address those problems first,” he said.

Mačiulis added that, regardless of the choice, the key is to keep investing: “Almost everyone knows what they need most – for one person it’s a washing machine, for another a car or a vacation. But for those who won’t withdraw their money to cover immediate needs, even if they choose not to stay in the second pillar, the best decision is to invest somewhere.

It doesn’t matter whether it’s real estate, stocks, or other funds – what matters is developing the habit of investing and not living only for today,” the economist advised.

Antanavičius agreed and shared the golden rule of income allocation: “The golden rule is this: 50% of income should go toward daily expenses, 30% toward quality of life, and 20% toward saving and investing.

I calculate that the 3% going into the pension fund is just a small portion of what should be allocated to saving and investing – it should be at least 10%.

Personally, I invest in several different streams with varying levels of risk – from very low to high. The pension pillar is the guaranteed option, additionally supported by the state,” he said.

Sysas concluded by emphasizing that while saving is important, today’s problems should not be ignored: “Our grandparents and parents survived without any pension pillars. Birth rates were high, incomes were low, yet people still managed to save. I understand that saving in a sock is no longer fashionable – it’s better to invest somewhere.

But I’m optimistic – Lithuanian citizens are smart, they know how to save, where to save, and how to survive. Everyone must decide for themselves what to do with their money – the conditions are there. Saving is necessary, but so is addressing today’s problems,” the politician emphasized.

Article link: https://www.tv3.lt/naujiena/verslas/atsake-ka-daryti-su-sukauptais-pensiju-pinigais-daugelis-apie-tai-nepagalvoja-n1452509