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First pension pillar

First pension pillar

Pension paid by the state

  • Sodra pays pensions to members of the first pension pillar
  • Pensions paid by Sodra make up around 30–40% of previous income
  • You can take advantage of the opportunity to build up pension savings by joining a multi-pillar pension system

If your employer or you pay usual social contributions for a certain period of time prescribed by the Law on State Social Insurance Pensions of the Republic of Lithuania, you will receive a state social insurance pension from Sodra once you reach the retirement age.

The first pillar of the pension system is based on the principle of gender solidarity: those who are employed and pay social insurance contributions to Sodra support their parents or grandparents, while later they are supported by their working children once they have reached the retirement age. The amount of pension depends on the number of years worked, amount of social contributions paid and period of their payment as well as the amount of insured income for the current year which is determined by the authorities depending on the amount of collected social insurance contributions.

Fewer taxpayers but more recipients of benefits

In many European countries, the number of working people is declining while the number of pension recipients is on the rise, forcing governments to increase the retirement age or raise taxes.

Lithuania is no exception. It began increasing the retirement age since 1 January 2012 by 4 months and 2 months each year for women and men respectively until the age of 65 is reached.

The number of recipients of benefits is rising in Lithuania because people live longer, while a low birth rate and emigration reduce the number of taxpayers. This means that social revenues are increasingly dropping and they have to be distributed to an increasingly higher number of pension recipients.

 

The diagram shows the development of the ratio between total Lithuanian
population and people at or above the age of sixty

Solution: build up additional pension savings

Lithuania, as other member states of the European Union, will find it increasingly difficult to address the issue of pensions in the future given the declining number of taxpayers and increasing number of elderly people. Therefore, following in the footsteps of other countries such as Poland, Estonia, Latvia, Sweden, etc., Lithuania is gradually implementing a multi-pillar pension system by creating conditions to build up pension savings in second-pillar pension funds and voluntary pension savings in third-pillar pension funds or under a unit-linked insurance contract.


Before making a decision to invest under the strategy of the relevant investment fund, you must, either yourself or with a help of our consultants, consider that your investments may fall in value due to inflation, changes in market interest rates or certain events beyond the control of SEB bank, UAB "SEB investicijų valdymas" or AB "SEB gyvybės draudimas".

The state social insurance old-age pension for members of the second pillar of the pension system who conclude pension savings agreements is reduced proportionally according to the procedure laid down in the Law on State Social Insurance Pensions.

Please note that the concluded second-pillar pension savings agreement cannot be terminated, except where a member is unilaterally terminating the agreement concluded for the first time within 30 calendar days of its conclusion notifying the pension company thereof in writing.

To ensure a good standard of living after retirement, your income at that time should be equal to around 70% of your current earnings. Unless we start preparing for retirement early and begin saving, our pension will be smaller and make up just 30—40% of our current income. It is likely that by taking part in all three pillars of the pension system you could achieve your monthly income after retirement of around 70% of your current income.

A multi-pillar pension system based on both state social insurance and personal savings is one of the ways to reduce your dependency on the ratio between the taxpayers and recipients of benefits.

What could be your future income if you take part/do not take part in the pension system?

Compare the potential outcomes (the chart shows the outcomes derived using the SEB pension calculator; the assumptions of calculations are provided below the chart):

First pillar (Sodra)
The pension paid by Sodra if state social insurance contributions are paid.

Second pillar
Your potential pension, if you save in a second-pillar pension fund, such as SEB Pensija (these pension funds are managed by UAB "SEB investicijų valdymas"):

  • without adding your own funds – if a second-pillar pension saving agreement is executed before 31 December 2012 and if the pension fund participant has not changed the method of payment of pension contributions
  • by adding your own funds – if a second-pillar pension saving agreement is executed starting from 1 January 2013 or before 31 December 2012 and the pension scheme participant has opted for further pension saving by additionally allocating part of his/her salary as established by law.

Third pillar
Your potential pension if additional savings are built up voluntarily, for instance, under a SEB Pensija Plius unit-linked insurance plan (the service is provided by AB "SEB gyvybės draudimas").


Assumptions

  • Second pension pillar

    The salary of a 30-year-old man is EUR 500.00 after taxes, he has built up savings of EUR 1,600.00 in his second-pillar pension fund account and the average annual return on investments is 5%.

    Fees of SEB Pensija: the asset management fee of 1% of the average annual value of savings, the contribution fee of 1%. The contribution fee is reduced by 0.5% every year until it is equal to 0%.

    Previous number of years worked and salary are not taken into account for the purposes of calculation since future results need to be calculated.

    Inflation, national average wages and pensions grow by 2.3% annually.

    Second-pillar SEB Pensija pension funds are managed by UAB "SEB investicijų valdymas".

  • Third pension pillar

    Voluntarily built up additional pension savings under SEB Pensija Plius unit-linked insurance plan: monthly premium of EUR 28.96, selected life insurance amount of EUR 0.29.

    Fees charged by SEB Gyvybės Draudimas: premium fee of 3.5% of the insurance premium, administration fee of EUR 2.03 and 0.05% of savings.

    The payer of premiums has sufficient income to be eligible for the full personal income tax relief and takes advantage of it. The amount refunded to him or her is later excluded from premiums and final savings.

    The unit-linked insurance service is provided by SEB Gyvybės Draudimas.

  • The benefit of the second and third pillar (pension annuity) is calculated on the basis of life expectancy of the Lithuanian population projected by the European Commission.

    The annuity is calculated on the assumption that the annual annuity interest rate is 2% and lump-sum annuity administration fee is 5% of savings in the pension fund.

    For the purposes of benefit comparison it is assumed that the annuity is purchased even if it is not compulsory under legal acts.

More information is available on the following page of the website of the Bank of Lithuania.

By using the SEB pension calculator, you can calculate your likely old-age pension if you became a member of the second pillar of the pension system

Please be warned that this calculator provides only an approximate estimate of the potential amount of your future pension. There are no guarantees that your state social security pension, profitability of pension funds or pension annuity (periodic benefit paid for term of life) will correspond to the results derived using this calculator.


Before making a decision to invest under the strategy of the relevant investment fund, you must, either yourself or with a help of our consultants, consider that your investments may fall in value due to inflation, changes in market interest rates or certain events beyond the control of SEB bank, UAB "SEB investicijų valdymas" or AB "SEB gyvybės draudimas".

The state social insurance old-age pension for members of the second pillar of the pension system who conclude pension savings agreements is reduced proportionally according to the procedure laid down in the Law on State Social Insurance Pensions.

Please note that the concluded second-pillar pension savings agreement cannot be terminated, except where a member is unilaterally terminating the agreement concluded for the first time within 30 calendar days of its conclusion notifying the pension company thereof in writing.

  • You can get pension from several sources.

Members of both the second and third pillars of the pension system receive their pensions from two sources when they reach the retirement age: from Sodra and private second and third pillar pension funds or from a life insurance company if they build up additional pension savings voluntarily under a unit-linked insurance plan.

The old-age pension paid by Sodra to members of the pension system building up their pension savings in second-pillar funds is reduced proportionally as required by law.

  • If investments are successful, you are likely to make a profit

Your money transferred to private pension funds is invested throughout the entire period of saving, so in case of successful investment your amount saved will be larger you originally invested.

By saving in pension funds, you bear the risk of investment return. You can manage thus risk partially by choosing a pension fund depending on your age. The less time you have before the retirement age, the lower the risks should be associated with the pension funds you choose.

  • You are entitled to receive all state social insurance benefits

Members of the multi-pillar pension system, just like all working people who pay social contributions, are entitled to receive other benefits of the state social insurance fund such as sickness or maternity benefits.

  • Savings held in funds can be inherited

Savings held in pension funds are inherited:

  • savings in a second-pillar pension fund are paid out in cash to the heirs
  • savings in a third-pillar pension fund are transferred either in cash or units of the pension fund (if the heir already is or becomes a member of the same pension fund)

Before making a decision to invest under the strategy of the relevant investment fund, you must, either yourself or with a help of our consultants, consider that your investments may fall in value due to inflation, changes in market interest rates or certain events beyond the control of SEB bank, UAB "SEB investicijų valdymas" or AB "SEB gyvybės draudimas".

The state social insurance old-age pension for members of the second pillar of the pension system who conclude pension savings agreements is reduced proportionally according to the procedure laid down in the Law on State Social Insurance Pensions.

Please note that the concluded second-pillar pension savings agreement cannot be terminated, except where a member is unilaterally terminating the agreement concluded for the first time within 30 calendar days of its conclusion notifying the pension company thereof in writing.

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