OREANDA-NEWS. April 16, 2013. Fear about managing financially during retirement is becoming more actual in the Baltic States, with more and more being saved for pension. At the same time, the people of Estonia, Latvia, and Lithuania must save an even larger proportion of their current earnings in order to maintain their living standards, as the Baltic Household Outlook, compiled by SEB, shows.

Lithuanian people are the most sensitive when it comes to pension problems. In the fourth quarter of 2012, the retirement pension was the lowest in Lithuania – EUR 236. The average pension in Latvia and Estonia was EUR 271 and EUR 316, respectively.

“The anxious attitude of Lithuanians also appears in surveys, according to which the people of the southernmost Baltic State name pension as the main goal for saving money twice as often as their northern neighbours do,” said Julita Varanauskiene, the SEB economist in Lithuania.

From the demographic point of view, the least favourable situation and the worst outlooks are in Latvia. Currently, the ratio of the elderly (over 65 years old) and the working-age people (15-64 years old) is 28 per cent and according to the forecasts it will reach 43 per cent by the year 2040. In Lithuania and Estonia, by 2040, the elderly/working-age ratio will reach 42 and 40 per cent, respectively, and therefore finding state funding for pensions will be equally difficult in all three Baltic States.

The best economic conditions, primarily relatively high wages, for preparing for retirement are in Estonia. Secondly, the contributions to the second pillar are the largest in Estonia, namely 6 per cent of wages, from which 2 per cent is paid by the employee and the remaining 4 per cent is added by the state. In Latvia and Lithuania, 4 per cent and 2.5 per cent of wages are transferred into the second pillar, respectively. Yet, in Latvia, the pension system is the fairest to the employee: the 4-per cent contribution is fully paid by the state. By the year 2020, the amount of the contribution should be similar in all three countries (6-7.5 per cent of wages). In Latvia, the whole contribution is paid by the state, in Lithuania (from April 2013) and in Estonia, the employee also pays a partial amount.

In Estonia, people count on working for the long-term, real estate, and children
“According to research conducted by SEB, in Estonia, people do not see investing money in the third pension pillar as the first option for insuring their retirement; instead they are counting on working as long as possible, investing in real estate, and the help of their children. One reason for such preferences may be that the families are not fully informed about the pension system and the tax incentive that is gained when investing in the third pillar,” commented Triin Messimas, Development Manager of Private Loans at SEB Estonia.

Deposits still form the largest part of family savings. At the same time, assets collected both in the second and the third pension pillar are increasing. When compared with deposits, the amount of money saved for retirement increased in Estonia from 25 per cent in 2008 to 37 by the end of 2012, in Latvia from 22 per cent to 44 per cent, and in Lithuania from 15 per cent to 25 per cent. Significantly more money is collected into the second pension pillar when compared to the third pillar - in Estonia EUR 1140, in Latvia EUR 720, and in Lithuania EUR 498 per person.

In twenty years, the first and the second pension pillar will give the average wage earner about 40 per cent of his or her previous income. In order to ensure a bigger income for the retirement, it is necessary to weigh supplementary collecting opportunities. Lithuanians have invested in the third pension pillar the most per person – EUR 233; Latvian and Estonian people invested EUR and EUR 220, respectively. In Estonia, the balance of the third pillar is currently only 6 per cent of deposits.