However, the Constitutional Court recently issued a ruling in which it was clarified that such an arrangement contradicts the Constitution. According to the court, the law should provide for exceptional cases so that people can withdraw their accumulated money even before reaching retirement age.
Despite this decision, a large number of institutions, such as the Ministry of Social Security and Labour, the Bank of Lithuania or commercial banks, advocate accumulation in the second or third tier of pensions.
All these institutions are also employers, and therefore, setting an example, they could pay their employees contributions to pension fund accounts in the second or third tier of pensions. But they don’t, arguing that the law prevents them from helping workers save for retirement.
The pension system is unreliable
Another way to ensure a more dignified pension for employees is professional funds, where employers can also accumulate money for the pension of employees. But they are not there either.
The representative of the employees notes that confidence in additional accumulation should be strengthened at this time, and for the time being professional funds could be represented by the third tier of pensions
Inga Ruginienė, chairperson of the Confederation of Lithuanian Trade Unions, said that the pension system is currently confusing.
“And until the issue of the second tier of pensions is not resolved, it would be difficult to integrate new ways of accumulation into the system, such as professional pension funds.”
We have analyzed our pension system a lot, so that during the transition period, it is best to have the first tier of pensions, that is, the “Sodra” pension. And if the second tier of pension is abandoned, additional money should be accumulated in the third tier of pensions, which would partially correspond to professional funds as well”, commented the representative of the employees.
According to her, professional funds applying the Scandinavian pension accumulation model would be difficult to establish in Lithuania.
“That requires additional capacity, which we don’t have. We only have the Professional Foundations Act. However, employers do not show a particular desire to apply it. There is a lack of a general agreement on how profession funds should work”, noted I. Ruginienė.
According to the representative of the employees, the third tier of pension accumulation should be utilized at the moment, instead of professional funds.
“The second tier of pensions has done a lot of damage, people do not trust the additional savings for retirement, especially when people were automatically included in the savings. Regaining trust would be possible only after reforming this system,” said the representative of the employees.
According to her, the second stage of pension accumulation should be abandoned and money should be accumulated in the third stage of pensions.
“Employers could also, as an additional bonus, transfer money to employees’ accounts in the third tier of pensions. And there should be no distinction between the private and public sectors. All employers should transfer money to employees in third-tier mutual fund accounts.
After all, saving for a pension would be much more useful than a subscription to a sports club”, pointed out Inga Ruginienė.
The excuse is that the law prevents employees from saving
The Ministry of Social Security and Labor (SADM) very often emphasizes the benefits of additional savings in the public sphere. However, hoarding yourself does not help your employees.
The Ministry assured that paying money into residents’ investment accounts is not allowed by law.
“For many years, the Ministry of Finance and the State Audit Office have taken the position that the exhaustive list of guarantees and incentives for civil servants is provided for in the Law on Civil Service, therefore additional employee benefits, such as additional pension accumulation, health insurance, cannot be paid for from the state budget.
From 2024 the amended Civil Service Law, like the Labor Code, sets minimum standards that cannot be worsened, but a collective agreement or an internal legal act can improve the situation of employees. This changes the approach to additional benefits for employees in the public sector,” the ministry commented.
The ministry claimed that it has limited budget options for additional employee benefits.
“SADM collective negotiations are currently underway. Additional benefits for SADM employees can also be negotiated,” the ministry hoped.
Encourages to accumulate, but does not help its employees to do so
The Bank of Lithuania also does not help its employees to save for retirement. According to him, contributions to employees’ second-tier pension funds are not included in the additional benefits package of the Bank of Lithuania.
“However, we constantly evaluate market innovations and trends, so we periodically review the package of additional benefits,” commented representatives of the Bank of Lithuania.
The Bank of Lithuania also explained why it encourages residents to make additional savings, even though it does not offer its employees the same opportunities as the employer.
“The Bank of Lithuania supervises pension funds, it is important for us that residents understand how the pension system works – how funds are accumulated, what returns can be expected in old age, what determines this, what are the good practices of other countries, trends in European countries, changes.
We evaluate and make proposals regarding the regulation of the pension system and accumulation, so that regulatory changes are beneficial to the consumer (e.g., pension fund administration fees were reduced, risk is managed through life cycle funds, etc.)” – said representatives of the Bank of Lithuania.
Employees are motivated by a future pension
At the time, private sector companies were much more likely to offer contributions to their pension fund accounts as one of the benefits to employees.
Rūta Stanaitytė, Head of Relations with Business Clients of Šiaulių bankas, calculated that about 1,000 Lithuanian companies have chosen the solutions of Šiaulių bankas group pension accumulation with the employer, which motivate their employees by paying contributions to their third-tier pension funds.
“The employees of Šiaulių bankas and the group of companies also use this opportunity. Every employee who has completed the trial period, no matter what position he holds or what salary he earns, can accumulate with the employer in Tier III pension funds or under investment life insurance contracts.
Employees themselves choose what part of their salary: 1 or 2 percent to allocate to savings, and the bank group the same amount: 1 or 2 percent, respectively. a part of the employee’s salary is additionally added and transferred to the third-tier pension fund chosen by the employee or according to the investment life insurance contract”, commented the representative of the bank.
According to him, similar practices were applied both at Šiaulių banka and INVL even before the merger of retail businesses (Šiaulių banka and Invalda INVL merged last year – author’s post) and continue to be used, as they are obviously beneficial to employees who comfortably invest in their future .
“It is an increasingly popular employee motivation tool that encourages employees to take care of their future. The employer’s contribution is very important, and not only financial.
The results of saving in pension funds often encourage employees to dig deeper, to be interested in investing in general and to think about their financial future,” said R. Stanaitytė.
