Ageing in Latvia

Ieva AleksandravičaLarisa DauksteLinda Krievāne

Santa NovikovaKristīne Starte

Maija Zieds - ZiediņaDoc. Staņislava TitovaAsoc. prof. Inese Mavļutova

Content

• Population• Pension system in Latvia• Statistic data• Solidarity principle• Conclusions and recommendations

CONTENT

POPULATION

POPULATION CHANGES IN LATVIA

Year Natural increase + Net migration2007 -10 2902008 -9 4502009 -12 7902010 -18 624

Population pyramidePOPULATION PYRAMID

PENSION SYSTEM IN LATVIA

• Pension system existing in Latvia while it was a member of USSR (till 1991) was created for planned economy

• The pension amount depended on working experience and average salary in the country, but not on the amount of social security contributions

• Low retirement age and ageing of population

REASONS OF REFORM OF PENSION SYSTEM IN LATVIA

• First – state mandatory unfunded pension scheme

• Second - state mandatory funded pension scheme

• Third – private voluntary pension scheme.

THREE-LEVEL PENSION SYSTEM

Conservative Balanced Active

Age < 10 years > 10 years > 20 years

Investment 100% of funds is invested in fixed income financial instruments ( bonds and bank deposits)

• 25% of funds is invested in the stocks of local and foreign companies

• 75% of fundsis invested in fixed income financial instruments

• 40% of funds is invested in the stocks of local and foreign companies

• 60% of funds is invested in fixed income financial instruments

PENSION PLANS FOR 2ND AND 3RD LEVELS

Year 20% from salary1st Level 2nd Level

2001-2006 18% 2%2007 16% 4%2008. 12% 8%2009 18% 2%2010 18% 2%2011 18% 2%2012 18% 2%from 2013 14% 6%

THE TOTAL SOCIAL INSURANCE CONTRIBUTIONS FOR PENSIONS - 20% OF ONE’S SALARY

Budgetary resources consist of:• contributions for pension insurance• dividends from the state pension special budget transfer of shares and the

proceeds from their sale• other income

• Special budget is used to finance following items:• According to the Law "On State Pensions" provided social

insurance services: ageing, disability and suvivorship pensions• SSIA (State Social Insurance Association) expenses related to the

administration

PENSION SPECIAL BUDGET

STATE PENSION SPECIAL BUDGET FOR 2011

Year Incomes Expenses Difference

2008 1017,8 880,6 137,2

2009 810,4 984,9 -174,5

2010 902,4 1147,9 -245,5

2011 948,6 1098,1 -149,5

STATE PENSION SPECIAL BUDGET, MILLIONS LVL

Woking years LVL EUR

< 20 49,50 71,06

21-30 58,50 83,98

31-40 67,50 96,90

> 41 76,50 109,82

MINIMUM PENSIONS

STATISTIC SHOWS REALITY

BIRTH AND DEATH

Year Natural increase

2007 -9 6482008 -6 9082009 -8 0902010 -10 712

Number of births (average) 22156.75

Number of death (average) 30996.25

TOTAL Under working age (0-14)

Working age (15-61)

Over working age (62+)

2010 2,248,374 13.75% 66.03% 20.22%

2011 2,067,887 14.11% 64.12% 21.77%

WORKING AGE

UNEMPLOYMENT RATE %

2006 2007 2008 2009 2010 2011Unemployed residents

5 4.5 5.8 12.8 13.9 14.5

UNEMPLOYMENT

Age 2007 2008 2009 2010

20-24-40 -303 -403 -1041

25-29-103 -541 -832 -1625

30-34-83 -399 -779 -1272

LONG TERM MIGRATION

LIFE EXPECTANCY

AVERAGE PENSION

2007 2008 2009 2010 20110.00

50.00

100.00

150.00

200.00

250.00

300.00

170.74

227.66256.12 256.12

284.57

EUR

• Allowed two years before real retirement age – currently from the age of 60.

• Social security must be at least 30 years. • Working persons do not receive early

retirement pension• Advantages in the social contributions:– For employee from 11% to 9.5%, – For employer from 24.09% to 20.8%.

EARLY RETIREMENT

For persons without early retirement, EUR

For persons in early retirement, EUR

Brut salary 653,1Untaxed minimum 64,03Social contributions paid by employee 11% 9,50%

71,84 62,04Income tax 25%

129,31 131,76

Net Salary=

451,95 459,3Brut salary –Social Contributions paid by employee – income tax)

EARLY RETIREMENT EXAMPLE

• The First pension level• Influencing factors and potential solutions• Social activities and additional support

SOLIDARITY PRINCIPLE

• The first level of the pension system is mandatory state non-funded pension system.

• The first level of the pension system ensures pensions for all who have been socially insured for at least 10 years.

• Insurance period < 10 years, person has been granted state social security benefit.

FIRST PENSION LEVEL

The First pension level

Solidarity of generations

Working population

Generation of pensioners

Women’s pension period

Men’s pension period

Gender solidarity

THE FIRST PENSION LEVEL

• Clubs for elderlies – communication, singing, traveling, sport activities, knitting etc.

• Corporate social responsibility – Merrild coffee, innovative ideas

• TV campaigns• Discounts – public transport, pharmacies,

optics, theatre, opera, museums etc.• Care homes

SOCIAL ACTIVITIES AND ADDITIONAL SUPPORT

Eldery people also want to eat every day!

Unemployment

Salaries

Retirement age

Death rate

Birth rate

Migration

INFLUENCING FACTORS AND POTENTIAL SOLUTIONS

• Latvian pension system involves two obligatory levels and one voluntary level.

• Subsistence minimum shows that theoretically living costs should be covered, but practically it is not enough.

• Elderlies can participate in different activities and in some special occasions – get additional social support.

CONCLUSIONS

Conclusions - Recommendations

The negative natural increase and long-term migration cause serious threat to the pension system of Latvia.

Government should carry out changes to stimulate the increase in birth rates and to motivate citizens to stay

CONCLUSIONS - RECOMMENDATIONS

Conclusions - Recommendations

State pension special budget cannot provide all of the current needs; it is necessary to either increase income or reduce expenditure.

To balance the tax burden, diverting larger share of all tax incomes to social needs, which is very important after recovering of global financial crisis.

CONCLUSIONS - RECOMMENDATIONS

Conclusions - Recommendations

Solidarity principle does not work effectively because of economic situation in Latvia and in the future it seems to get worse because of demography.

To reduce the lack in social pension special budget government should accept changes in tax legislation which could be done if a greater part of tax income could be redistributed to social sphere.

To increase the birth rates in Latvia the government should create pleasant and secure environment for new families. This could be done both with providing sufficient social benefits, and taking care of environment adapted for mothers and children.

CONCLUSIONS - RECOMMENDATIONS

Paldies par uzmanību!

Thank You for Your attention!