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!