Pension Privatisation in the Baltic States: Expectations and Early Experiences

Abstract

Just after the turn of the 20th century, the three Baltic governments acted in close sequence to partially privatise their national pension schemes – Latvia adopted this change in 2000, Estonia, in 2001, and Lithuania in 2002. These reforms may be considered a ‘second generation’ of pension privatisation in Central Europe, following similar actions by the regional leaders, Hungary (1998) and Poland (1999). This article examines the Baltic countries' early experience with privatisation, by comparing them with each other and with the Hungarian and Polish experience. In doing so, it pays particular attention to the challenges of establishing the new second pillars, to the impact of the new privately-managed individual savings schemes on the pre-existing public pay-as-you-go pension systems, and to updated projections of the effect of the reforms on future benefit adequacy. The final section situates the Baltic reforms in the context of an evolving general understanding of the economic impacts of pension privatisation, especially on aging populations, and offers recommendations for ensuring that pension levels in the Baltic states meet a basic minimum level of adequacy, as set out in the social security standards of the ILO and Council of Europe.