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Seminar on Social Protection Issues 18 December 2014
On December 18th, 2014, the Ministry of Welfare of Latvia hosted a seminar on social protection issues within the project "Latvia: Developing a Comprehensive Active Ageing Strategy for Longer and Better Working Lives". Representatives from the World Bank, partners from Poland and Estonia as well as representatives from the Ministry of Welfare of Latvia and other Latvian institutions described the current situation and discussed various aspects of social protection in the context of an aging population.
Pension System in Latvia, presented by Jana Muizniece, Ministry of Welfare of Latvia
  • Solidarity of generations – current benefits and pensions are financed from the current social insurance contributions.
  • All the employed and self-employed persons who are older than 15 years old are subject to social insurance.
Pension system:
  • Pillar I – notional defined contribution pension scheme (since January 1st, 1996):
  • amount of pension is based on the contributions made;
  • in 2014 retirement age for both gender was 62 years and 3 months. Retirement age will be increased to 65 by 2025. Early retirement is allowed 2 years before the statutory retirement age;
  • minimum savings period – 15 years (20 years after 2025).
  • Pillar II – state mandatory funded pension scheme (since July 1st, 2001):
  • part of social contributions are invested into the financial market and accumulated on the participant’s personal account;
  • contribution rate – 4% in 2014, 5% in 2015, 6% in 2016, but total contribution (20% from earnings) remains unchanged.
  • Pillar III – private pension scheme (since July 1st, 1998):
  • voluntary additional savings for pension by paying contributions into the private pension funds;
  • minimum retirement age – 55;
  • 227 000 participants (22.8% of economically active population in 2013).
Minimum Income Reform in Latvia, presented by Evija Kula, Ministry of Welfare of Latvia
  • Poverty risk and income inequality is relatively high in Latvia, and it increased significantly during crisis.
  • In 2009 Latvia had the highest at risk of poverty rate in the EU (26%); in 2013 the rate decreased to 19.4%.
  • In 2013 in Latvia the income of wealthiest population exceeded the income of the poorest people 6.5 times.
  • 6% of Latvian population is needy (income does not exceed 128 EUR).
  • Main conclusions from recent studies:
  • amount of minimum income level in Latvia is not evidence-based;
  • after receipt of the support needy people are still in a deep poverty and face high poverty risks;
  • high tax burden for low paid employees is a disincentive to work.
  • Proposals:
  • define an adequate, evidence-based and common minimum income level in the country and refer it to all systems influencing people income;
  • define minimum income level upon OECD poverty measurement methodology, setting at 40% of national median equalized disposable income;
  • develop a new subsistence basket of goods and services for the assessment of the adequacy and efficiency of newly defined minimum income level.
  • Minimum income reform is projected to enter into force in 2017.
Polish Pension System: Main features after recent reforms, presented by Dominik Komorek, Ministry of Labour and Social Policy of Poland
  • After the reform of the old age pension scheme in 1999, in Poland two pension schemes operate parallel, old scheme – for persons born before January 1, 1949 and new scheme – for persons born after December 31st, 1948.
  • Old scheme is based on pay-as-you-go system and therefore vulnerable to demographic threats.
  • New scheme consists of 3 pillars:
  • I pillar – compulsory. I pillar is managed by Social Insurance Institution and is financed by current contributions;
  • II pillar – voluntary. II pillar, consisting of open pension funds, is managed by private institutions and is financed by gathered funds;
  • III pillar – voluntary private pensions. III pillar is managed by private institutions, which are usually insurance companies, and is financed by gathered funds.
  • Under the new scheme, persons born between 1949 and 1969 could choose whether they wanted to join II pillar or not. Persons born after 1969 had an obligation to transfer part of their contributions to the II pillar.
  • Statutory retirement age will be increased to 67 by 2040.
  • Pension insurance contribution equals 19.52% of basic salary and is transferred to Social Insurance Agency and open pension funds.
  • Some occupations are excluded from the universal pension system: police, armed forces, state fire services, farmers, prosecutors and judges.
Social Protection Schemes in Estonia. Presented by Natalja Omletšenko, Ministry of Social Affairs of Estonia
  • Just like most countries in Europe, Estonia is facing a problem of ageing population and therefore also sustainability of pension system.
  • Pension system in Estonia consists of 3 pillars:
  • I pillar – publicly managed compulsory state pension that is based on pay-as-you-go principle;
  • II pillar – privately managed compulsory funded pension;
  • III pillar – privately managed voluntary funded pension (not popular).
  • Old age pensionable age is expected to reach 65 years by 2026. The goal is to link retirement age to life expectancy.
  • Future plans include reform of special pension schemes, limitation of early retirement schemes, revision of indexation.
  • Capacity for work allowance is applicable when medical condition that decreases work capacity is present. If no ability to work is present, incapacity for work allowance is EUR 320. In case of reduced ability to work allowance is EUR 180. Incapacity for work programme does not substitute disability pension which covers more serious health conditions.
  • Person is eligible for unemployment insurance only in case of involuntary quit. Persons who were dismissed or quit on their own do not receive unemployment insurance.
Social Innovation on Active and Healthy Ageing for Sustainable Economic Growth, presented by Baiba Bela and Anna Stepčenko, University of Latvia
  • Main goals of the project:
  • to develop supporting tools and mechanisms for the Social Innovation Incubator on Active and Healthy Ageing (AHA);
  • to engage and empower society and civil society organisations in research on AHA;
  • to introduce evidence-based policymaking through training activities with policymakers;
  • to analyse and improve the existing mechanisms for accessing the market of innovative products and solutions for older people.
  • There are 19 consortium members (universities, various innovative agencies) in this project.
  • Basic ideas are based on the following: differentiation among elderly, stereotypes regarding elderly, value of wisdom, intergenerational cooperation.
  • First results:
  • inclusion of older people in shaping policy has a positive impact on innovation and assessment of the needs of elderly population;
  • it is important to empower the society to actively participate in research and to improve communication among researchers and decision makers.
Social Protection in Aging EU Economies, presented by Emily Sinnott, World Bank
  • Latvia has the largest decrease in population in Europe (1990 – 2010), which is due to low birth rates and high net migration rates.
  • Longevity differs substantially among EU countries. Life expectancy of people born in 2012 in Latvia is 74 years which is significantly less than the average of EU-15 (81 years).
  • Duration of retirement in Latvia is 14 years for male and 20 years for female.
  • Public pension reforms need more holistic approach:
  • pension policy changes are not enough, raising retirement age without enabling workers to work longer cuts costs, but leaves some workers with an income gap;
  • prioritize public pension spending – focus on needy elderly people;
  • increase savings to maintain adequate benefits;
  • encourage longer working life through enabling policy environment;
  • rely more heavily on tax financing of transition deficit (increase marginal tax rate, reduce subsidies, increase wealth/inheritance tax);
  • be transparent – define reliable methodologies for calculating the implicit pension debt, and make these figures available to public;
  • in the absence of fiscal responsibility, no pension system will be sustainable.
  • Challenges for pension fund management industry:
  • centralize business areas economies to reduce costs;
  • create competition in the portfolio management industry;
  • design pay out structures that ensure proper risk allocation of investments and longevity risks.


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