Strengthening funded pension provision in Lithuania through the public provision of annuities

The Commission has supported the national authorities to strengthen the Lithuanian pension system through a switch from private to the public provision of pension payments from the statutory funded pension scheme. The project supported the design of the legal and technical framework for annuity provision, the setting up of the institutional framework, as well as the organisational development of this new function within the State Social Insurance Fund (SODRA).

Context

In Lithuania, mandatory funded pension savings are expected to play an important role in complementing pension entitlements from the public pension scheme. However, contributions to the funded (“2^nd pillar”) scheme have been comparably low and the annuities paid out are further affected negatively by relatively high administrative costs. The 2018 pension reform package therefore announced the establishment of a single, public annuity provider that would take over the management of 2^nd pillar savings in the pay-out phase.

Support delivered

The Commission and the Organisation for Economic Co-operation and Development (OECD) have supported Lithuania on the actual design of the public annuity function. The analyses and recommendations prepared under the project have fed into the legal proposal and also informed the technical framework as well as the chosen institutional and organisational set-up.

Results achieved

The Lithuanian Parliament has passed the law on the public provision of annuities and since mid-2020, the State Social Insurance Fund has taken over the calculation and administration of annuities from private insurance providers. The reform is expected to result in lower administrative costs and thus better pension outcomes for the pension beneficiaries.