Vitas Vasiliauskas, the central bank governor, says that the current pension system is unsustainable as the number of working people will fall to 1.2 million in 20 years, from 1.7 million, and there will be ten workers per six retirees, down from ten per three. This means that pensions will go down unless the pension system is overhauled.
The central bank proposes to introduce personal accounts that would link a person's contributions paid throughout their lifetime and benefits received, irrespective of their years of service. The state would commit to paying out the amount accumulated on a person's account.
"Personal accounts could be a supplement to the basic pension. In other words, they would replace the length of service and the additional pension supplement. It would be a virtual account that would show how much a person has paid in contributions and what benefits they could expect to receive in their old age," Vasiliauskas said at a news conference on Tuesday.
In light of negative demographic trends, people should be encouraged to continue to work longer if they want to, he said.
Šarūnas Ruzgys, head of the Lithuanian Investment and Pension Funds' Association, says that he supports in principle the central bank's proposals. However, pension funds cannot approve of forcing people to return to the state-run social insurance fund Sodra, he said.
Currently, employees can divert 2 percent of their compulsory social insurance contributions to private second-pillar pension funds. A person may also opt to contribute 2 percent of their salary to a pension fund and the state then adds 2 percent of the country's average salary.