Abstract
Over the last decades in the Baltic States (Lithuania, Latvia, Estonia), statutory pension guarantees have decreased in favour of market-based instruments and have partially shifted away from public pension schemes towards complementary funded pension schemes. However, this change does not automatically mean a higher pension replacement rate or wider pension coverage, which illustrates the strengthening of statutory pensions during recent years.
Both funded and statutory public pensions should guarantee sufficient financial resources for pensioners, at the same time ensuring social solidarity between generations. In order to increase the pension replacement rate, pension policy should be oriented towards providing sufficient opportunities for the population to participate in complementary pensions and to raising individuals’ responsibility for their welfare.
This paper aims to debate the interactions between statutory public and complementary funded pension guarantees, examining the pension system financing model in the Baltic States in the framework of the recommendations of international organisations. The right to social security (including pensions) is recognised in the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights and other international instruments as a precondition guaranteeing the dignity of life, combatting discrimination, reducing poverty and promoting social inclusion. In this regard, development of complementary pension insurance with state support significantly contributes to ensuring the dignity of life at retirement.
The paper discusses why complementary occupational pensions do not function in the Baltic States and which regulatory-financial instruments could improve this situation, ensuring better pension coverage. Section 1 reveals how the interaction between statutory and complementary pensions has been presented in the scientific literature and by international organisations. Beyond policy recommendations and scientific research, Sect. 2 examines the similarities and differences of pension system construction in the Baltic States and which pension guarantees have been highlighted in constitutional jurisprudence. Section 3 presents the EU instruments that have been introduced to regulate complementary occupational retirement, analyses the development of this type of pension insurance in the Baltic States and discusses possible enhancements. Concluding the chapter, the author provides policy recommendations for better coverage and regulation of pension policy.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
Regarding the right to possession of pensions, in 2002 the European Court of Human Rights issued a ruling (which was cited in the constitutional jurisprudence of Lithuania and Latvia) that the old-age pension is linked with possession: the applicant’s rights to a pension could be regarded as a “possession” within the meaning of Article 1 of Protocol No. 1 and that, consequently, Article 14 of the Convention for the Protection of Human Rights and Fundamental Freedoms was applicable (ECHR 2002).
- 2.
However, a person who opts out of the second pillar or stops contributions can re-join and start drawing a pension again after 10 years.
- 3.
Author’s note: according to the data from the Ministry of Social Protection and Labour of Lithuania, the gross first-pillar pension replacement rate in Lithuania was 26.5% in 2020.
References
Books and Articles
Barr N (2003) The Welfare State as Piggy Bank. Oxford University Press, Oxford, pp 28–49
Barr N, Diamond P (2008) Reforming pensions: principles and policy choices. Oxford University Press, New York
Baugniet W (2014) The protection of occupational pensions under European Union law on the freedom of movement for workers. Resource document. European University Institute, Florence. https://cadmus.eui.eu/handle/1814/33869. Accessed 10 Dec 2020
Bodie Z, Marcus AJ, Merton RC (1998) Defined benefit versus defined contribution pension plans: what are the real trade-offs? In: Bodie Z, Shoven JB, Wise DA (eds) Pensions in the U.S. Economy, pp 139–162. Resource document. http://www.nber.org/chapters/c6047. Accessed 21 Dec 2020
Charpentier F (2009) Les retraites en France et dans le monde. Economica, Paris
Dundure E, Sloka B (2020) Tax Incentives as a Part of Governments’ Applied Mechanisms for the Third Pension Pillar in Estonia, Latvia, and Lithuania. Resource document. European Integration Studies, No. 14. https://eis.ktu.lt/index.php/EIS/article/view/26379/14498. Accessed on 16 Dec 2020
Dupeyroux J et al (2008) Droit de la sécurité sociale. Dalloz, Paris, pp 80–87
Durand P (2005) La politique contemporaine de Sécurité sociale. Dalloz, Paris, pp 30–38
Ebbinghaus B (2011) Introduction: studying pension privatization in Europe. In: Ebbinghaus B (ed) Varieties of pension governance. The privatization of pensions in Europe. Oxford University Press, Oxford, pp 3–22
Euzeby A (2007) Financing of the social protection: the pillar of the social Europe. The presentation material of the conference (28 November 2007) of European social insurance platform (ESIP). Luxembourg, ESIP
Fultz E, Hirose K (2019) Second-pillar pensions in Central and Eastern Europe: payment constraints and exit options. Int Soc Secur Rev 72(2):3–22
Gylys P (2002) Pensijų sistema Lietuvoje: dilemos ir kontroversijos. Viešoji politika ir administravimas 2:78–84
International Labour Organisation (ILO) (2011) Conference “Social security for social justice and a fair globalization”. International Labour Office, Geneva, pp 62–117
International Labour Organisation (ILO) (2018) Reversing Pension Privatizations: Rebuilding public pension systems in Eastern Europe and Latin America. ILO, Geneva
International social security association (ISSA) (2010) Dynamic social security for Europe: choice and responsibility: developments and trends. ISSA, Geneva
Kulu L, Reiljan, J (2004). Old-Age Pension Reform in Estonia on the Basis of the World Bank’s Multi-Pillar Approach. Resource document. University of Tartu. https://majandus.ut.ee/sites/default/files/mtk/RePEc/mtk/febpdf/febawb34.pdf. Accessed on 16 Dec 2020
Lazarevski D, Mrsik J (2012) Reformed Pensions Systems in Central and Eastern Europe: challenges to future safe pension benefits. Resource document. MPRA Paper No. 41996. https://mpra.ub.uni-muenchen.de/41996/. Accessed 16 Dec 2020
Liddle R, Diamond P (2010) Aftershock: the coming social crisis in the EU and what is to be done. In: Marlier E, Natali D (eds) Europe 2020: towards a more social EU? Work and Society, vol 69. P.I.E. Peter Lang S.A, Brussels, pp 72–76
Lieksnis R (2010). Evaluating the financial performance of Latvian and Estonian second-pillar pension funds. Resource document. https://www.researchgate.net/publication/224944585_Evaluating_the_Financial_Performance_of_Latvian_and_Estonian_Second-Pillar_Pension_Funds. Accessed on 16 Dec 2020
Medaiskis T, Gudaitis T (2017) Evaluation of second pillar pension fund supply and investment strategies in the Baltics. Journal of Business Economics and management. Vilnius Gediminas Technical University 18(6)
Piirits M, Laurimäe M (2019) Estonia’s statutory funded pension scheme: a turning point? Resource document. ESPN Flash Report 2019/39. https://ec.europa.eu/social/BlobServlet?docId=21517&langId=en. Accessed 17 Dec 2020
Schoukens P (2016) EU social security law: the hidden ‘social’ model. Tilburg University, pp 7–42
Sterdyniak H (2008) La redistribution par la fiscalité: un objectif encore tenable? In: Gonthier F (ed) Justice sociale et action publique: des principes à leur mise en oeuvre. La documentation française, Paris, pp 122–124
Volskis E (2012). Reforms of Baltic States pension systems: challenges and benefits. Accessed 10 Dec 2020. www.ebrd.com/downloads/news/pensionsystem.pdf. Accessed on 16 December 2020
World Bank (WB) (1994) Averting the old age crisis. Oxford University Press, New York
Legal Acts
European Union (EU) (2003) Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision. Resource document. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32003L0041&from=LV. Accessed 10 Dec 2020
European Union (EU) (2016) Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 “On the activities and supervision of institutions for occupational retirement provision”. Resource document. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32016L2341. Accessed 10 Dec 2020
International Labour Organisation (ILO) (1952) Convention C102 “Social Security Minimum Standards”. Resource document. https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C102. Accessed 6 Apr 2021
Parliament of Estonia (PE) (2004). The Funded Pensions Act of Estonia. Resource document. https://www.riigiteataja.ee/en/eli/523012014002/consolide. Accessed 10 Dec 2020
Parliament of Latvia (LVP) (1997) The Law on Private Pension Funds of Latvia. Resource document. https://www.vestnesis.lv/ta/id/44006-par-privatajiem-pensiju-fondiem. Accessed 10 Dec 2020.
Parliament of Lithuania (LP) (2006) Law on the Accumulation of occupational pensions. Official J 2006:82–3248
Case Law
European Court of Human Rights (ECHR) (2002) Decision of 4 June 2002. Wessels-Bergervoet c. Netherlands (application No. 34462/97). Resource document. http://hudoc.echr.coe.int/eng?i=001-60493. Accessed 16 Dec 2020
European Court of Justice (ECJ) (1998). Case C-35/97 Commission v France. Resource document. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:61997CJ0035. Accessed 16 Dec 2020.
Latvian Constitutional Court (LVCC) (2009) Judgement of 21 December 2009. Resource document. https://www.satv.tiesa.gov.lv/web/viewer.html?file=/wp-content/uploads/2009/07/2009-43-01_Spriedums_ENG.pdf#search=. Accessed 12 Dec 2020
Latvian Constitutional Court (LVCC) (2010-1) Decision of 31 March 2010. Resource document. https://www.satv.tiesa.gov.lv/web/viewer.html?file=/wp-content/uploads/2009/08/2009-76-01_Spriedums_ENG.pdf#search=. Accessed 12 Dec 2020
Latvian Constitutional Court (LVCC) (2010-2) Decision of 15 April 2010. Resource document. https://www.satv.tiesa.gov.lv/web/viewer.html?file=/wp-content/uploads/2009/09/2009-88-01_Spriedums_ENG.pdf#search=. Accessed 12 Dec 2020
Latvian Constitutional Court (LVCC) (2010-3) Decision of 21 April 2010. Resource document. https://www.satv.tiesa.gov.lv/web/viewer.html?file=/wp-content/uploads/2009/09/2009-86-01_Spriedums_ENG.pdf#search=. Accessed 12 Dec 2020
Lithuanian Constitutional Court (LCC) (2002a) Decision of 25 November 2002. Official Journal, 2002, No. 113-5057
Lithuanian Constitutional Court (LCC) (2002b) Decision of 25 November 2002. Official Journal, 2002, No. 113-5057
Lithuanian Constitutional Court (LCC) (2012a). Resolution of 29 June 2012. Official Journal, 2012, No. 78-4063
Lithuanian Constitutional Court (LCC) (2012b) Resolution of 29 June 2012. Official Journal, 2012, No. 78-4063
Supreme Court of Estonia (SCE) (2020). Decision of 20 October 2020. Resource document. https://www.riigikohus.ee/en/news-archive/supreme-court-did-not-declare-pension-reform-unconstitutional. Accessed 10 Dec 2020
On-line Sources
Better Finance (2019). Pension Savings: The Real Return 2019 Edition. Resource document. https://betterfinance.eu/wp-content/uploads/Real-Returns-2019-Latvian-Country-Case.pdf. Accessed 10 Dec 2020
European Commission (EC) (2010) Green paper: towards adequate, sustainable and safe European pension systems: COM (2010) 365 final. European Commission, Brussels
European Commission (EC) (2012) An Agenda for Adequate, Safe and Sustainable Pensions: COM (2012) 55 final. European Commission, Brussels
European Commission (EC) (2017) 2017 SBA Fact Sheet: Lithuania. Resource document. https://ec.europa.eu/docsroom/documents/38662/attachments/18/translations/en/renditions/native. Accessed 15 Dec 2020
European Commission (EC) (2018) The 2018 Ageing Report Economic & Budgetary Projections for the 28 EU Member States (2016-2070). Resource document. Luxembourg: Publications Office of the European Union. https://ec.europa.eu/info/sites/info/files/economy-finance/ip079_en.pdf. Accessed 16 Dec 2020
European Commission (EC) (2019) Estonia’s statutory funded pension scheme: a turning point? Resource document. https://ec.europa.eu/social/BlobServlet?docId=21517&langId=en. Accessed 12 Dec 2020
European Foundation for the Improvement of Living and Working Conditions (Eurofund) (2013) Social partners’ involvement in pension reform in the EU. Resource document. https://www.eurofound.europa.eu/publications/reports/2013/social-partners-involvement-in-pension-reform-in-the-eu. Accessed 11 Dec 2020
European Insurance and Occupational Pensions Authority (EIOPA) (2018) 2017 market development report on occupational pensions and cross-border IORPs. Resource document. EIOPA: Brussels, 22-28. https://www.eiopa.europa.eu/content/eiopa-publishes-its-2017-market-development-report-occupational-pensions-and-cross-border_en. Accessed 11 Dec 2020
Eurostat Database (2020) Population on 1 January by age group and sex. https://ec.europa.eu/eurostat/databrowser/view/demo_pjangroup/default/table?lang=en. Accessed 17 Dec 2020
International Labour Organisation (ILO) (2008) Social security and the rule of law: general survey concerning social security instruments in light of the 2008 Declaration on social justice for a fair globalization (ILC.100/III/1B). Resource document. https://www.ilo.org/wcmsp5/groups/public/%2D%2D-ed_protect/%2D%2D-soc_sec/documents/publication/wcms_secsoc_21980.pdf. Accessed 10 Dec 2020
Latvijas Centrālais depozitārijs (LCD) (2020) Resource document. https://www.manapensija.lv/en/2nd-pension-pillar/statistics/. Accessed 17 Dec 2020
Lithuanian Bank (LB) (2020) Pension funds. Resource document. https://www.lb.lt/lt/pensiju-fondai-1. Accessed 17 Dec 2020
Organisation for Economic Cooperation and Development (OECD) (2011a) Estonia: review of the private pensions systems. Resource document. http://www.oecd.org/finance/private-pensions/49498084.pdf. Accessed 14 Dec 2020
Organisation for Economic Cooperation and Development (OECD) (2011b) Pensions at a glance. OECD Publishing, Paris. https://www.oecd-ilibrary.org/finance-and-investment/pensions-at-a-glance-2011_pension_glance-2011-en. Accessed 17 Dec 2020
Organisation for Economic Cooperation and Development (OECD) (2016) Adult Financial Literacy Competencies. Resource document. https://www.oecd.org/daf/fin/financial-education/OECD-INFE-International-Survey-of-Adult-Financial-Literacy-Competencies.pdf. Accessed 14 Jan 2020
Organisation for Economic Cooperation and Development (OECD) (2018) Reviews of pension systems: Latvia. Resource document. https://read.oecd-ilibrary.org/social-issues-migration-health/oecd-reviews-of-pension-systems-latvia_9789264289390-en#page32. Accessed 16 Dec 2020
Organisation for Economic Cooperation and Development (OECD) (2021) Pensions at a glance 2021: OECD and G20 Indicators, OECD Publishing, Paris. https://doi.org/10.1787/ca401ebd-en. Accessed 24 Feb 2022
The European Trade Union Institute (ETUI) (2020) Resource document. https://www.worker-participation.eu/National-Industrial-Relations/Countries. Accessed 10 Dec 2020
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2022 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Bitinas, A. (2022). Improving the Financial Situation of the Elderly: Towards Better Pension Coverage in the Baltic States. In: Limantė, A., Pūraitė-Andrikienė, D. (eds) Legal Protection of Vulnerable Groups in Lithuania, Latvia, Estonia and Poland. European Union and its Neighbours in a Globalized World, vol 8. Springer, Cham. https://doi.org/10.1007/978-3-031-06998-7_7
Download citation
DOI: https://doi.org/10.1007/978-3-031-06998-7_7
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-031-06997-0
Online ISBN: 978-3-031-06998-7
eBook Packages: Law and CriminologyLaw and Criminology (R0)