PensionsEurope has urged the Lithuanian government to reconsider its proposed pension reforms, warning that they would “severely undermine” the country’s retirement system.

The proposed changes to the second pillar pension scheme include replacing automatic enrolment with voluntary participation, the abolition of the state’s matching contribution in favor of a personal income tax deduction, and the introduction of a 12- months opt-out period.

However, PensionsEurope argued that the changes could risk “significantly weakening” retirement security and undermining pension adequacy for Lithuanian citizens.

In particular, PensionsEurope argued that auto-enrolment is widely recognised as one of the most effective mechanisms to boost pension participation, pointing out that Lithuania’s 2019 auto-enrolment reform has already delivered “excellent” results, with over 70 per cent of the workforce joining the second pillar system.

Given this, it warned that removing this mechanism to adopt a voluntary model would likely cause participation rates to decline rapidly, leaving many individuals with significantly lower retirement savings and increasing the risk of old-age poverty.

It also argued that the proposed reforms go beyond dismantling auto-enrolment, as the proposed abolition of the 1.5 per cent state matching contribution and its replacement with a tax refund mechanism will “drastically” reduce incentives to save, disproportionately impacting lower- and middle-income earners.

“By weakening the second pillar, the proposed changes would place even greater pressure on the already strained public pensions,” PensionsEurope stated.

“This is particularly alarming given that in 2022, 41.4 per cent of Lithuanian citizens aged 65 and older were already at risk of poverty—more than double the EU average.

“Ignoring this reality, but also the country’s long-term demographic issues, including an aging and shrinking population, will only deepen the pension crisis in the years ahead.”

PensionsEurope also raised concerns around the plans to introduce a 12-month opt-out window, stating that this could pose a “serious threat” to future pensions adequacy, particularly given Lithuania is already facing challenges in providing adequate retirement income.

In light of these concerns, PensionsEurope urged the Lithuanian government to reconsider its proposed changes and instead pursue measures that strengthen, rather than dismantle, the country’s pension system.

“The statutory-funded pension scheme in Lithuania is still in its infancy and will require time to mature and deliver its full benefits,” PensionsEurope stated.

“Targeted measures should be adopted to enhance its effectiveness. These include public education campaigns on the importance of the statutory-funded pension scheme and incentivizing employers’ contribution to the second pillar.

“Such actions are important to building a better pension system and improving the retirement future of Lithuanian citizens for generations to come.”

PensionsEurope also pointed out that the Lithuanian Ministry of Social Affairs has secured support from the European Commission’s DG Reform for the project ‘Technical Support in Transforming the Existing Fully StateAdministered Funded Pension Scheme’.

As the recommendations from the European Commission’s experts are still forthcoming, PensionsEurope again encouraged the Lithuanian government to await their insights before implementing any changes to the current pension framework.

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