Lithuanian Pension System’S Reforms Transformations and Forecasts

Audrius Bitinas,Alessandro Fiori Maccioni

doi:10.13189/ujibm.2014.020103

Audrius Bitinas, Alessandro Fiori Maccioni

Open Access

https://doi.org/10.13189/ujibm.2014.020103

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Abstract

The aim of this article is to describe the Lithuanian pension system, its reform process and its long-term financial sustainability. We define therefore the current reforms in the public pension system, influenced by the last economic crisis and social challenges. Also, we forecast the financial dynamics of the public pension system, in the light of raising social expenses (due to second pillar pension reforms) and of demographic trends (like ageing society and low fertility). Results reveal the long-term sustainability of the system, albeit at a cost of initial negative balances to be covered with public budget. Policy solutions could improve sustainability by encouraging and extending employment (especially for the disadvantaged) and by building trust in both public and private pension systems.

Highlights

Before the economic crisis in 2008, Lithuania reformed pension system in 1995 and 2003
In estimating the financial dynamics of the Lithuanian public pension system, we considered the current reform of second pillar system that requires workers to choose among three different contributive options
We estimated the financial dynamics of the Lithuanian public pension system and the effects of demographic, economics and regulatory variables in the period 2012-2051

Summary

Introduction

Before the economic crisis in 2008, Lithuania reformed pension system in 1995 and 2003. Without any pension reform the replacement rate (male worker retiring at 65 after 40 years of career) in the first pillar will decline from 48% to 35% in 2048 Pension expenditures in Lithuania will grow: the change of the age-related expenditure in 2007-2060 will be 4,6% of GDP (in EU-27 will be 2,4% of GDP in the period 2007-2060). Despite of negative prognosis showing increase of the pension expenditure in Lithuania, there are some factors which could mitigate the growth of the pension system expenses: restriction of the eligibility for a public pension (through higher retirement age, reduced access to early retirement and changes of the disability pension system), higher employment and reduced generosity of pensions

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