The Development of Private Pensions in Lithuania

The Lithuanian pension system experienced two major reforms, one in 1995, which introduced social insurance principles, and a second one in 2000 which established a voluntary funded pension pillar. Strict regulatory measures, an unfavourable tax regime, and high social security contributions largely explain the failure to attract investors in fund management companies. After a long debate, a new law was approved in December 2002 to be implemented in January 2004. Workers will be able to choose between making their full social contribution to the PAYG tier and diverting part of it (up to 2.5% of their salary in the first year, increasing up to 5.5% in later years) to mandatory pension funds and specific life insurance contracts...