Although the region has no tradition of employer pension responsibility, some countries are starting to see the introduction of occupational schemes
- CEE has no tradition of employer pension responsibility
- Most countries lack collectively bargained agreements
- New systems are being rolled out but many are still in the adoption phase
In pension terms, most second and third-pillar arrangements in Central and Eastern European (CEE) countries have yet to reach adolescence. Set up in the wake of the fall of the Iron Curtain, they were mostly introduced by the states on an individual rather than a collective basis. The term occupational pension plan does not really apply, as employers only had – and continue to have – a very limited role.
Despite the CEE region not being a homogenous area, one factor holds true for most of the countries subsumed under that heading: local employers have never had to provide for their employees’ pensions other than to pay their social contributions into the first pillar.
“Across the region and all the countries there is no tradition of employers making significant contributions to their employees’ pensions,” confirms Tadas Gudaitis, chairman of the Lithuanian Investment and Pension Funds Association (LIPFA). Most countries have no historically rooted collective agreements either that were the basis for occupational pension plans in many Western European countries, he adds.
“It is a major issue that employers are not contributing but there is also little discussion, because employees are not requiring it from them,” Gudaitis notes. For most employees, the main focus is still on short-term benefits or the highest net total salary possible.
However, he sees the situation “improving more and more”, with some employers starting to top up employees’ pension accounts. In some countries like Romania and Bulgaria, such additional contributions have been mandatory from the start. In most others they remain voluntary.
This is also true for Poland, according to Marta Damm-Świerkocka, board member of the PFR Portal PPK, the arm of the state-owned Polish development fund that is promoting the mandatory PPK second-pillar pension plan. “Employers are increasingly beginning to see the possibility of using the increased PPK contribution as an additional benefit or non-wage motivator. Currently, approximately 1.7 % of employees and 5.2 % of employers make an increased contribution to the PPK,” she notes.
Opt in or opt out?
Introduced six years ago, the Polish PPK scheme has now reached full roll-out (see box). Employers have to set up the pension plans and make a small contribution. However, their main role is in offering the contracts for their employees, who can then opt out although they have to do so every four years otherwise re-enrolment kicks in.
In Lithuania, Gudaitis points out, the increase in employer contributions to supplementary pensions has been driven mainly by international companies, with Lithuanian subsidiaries paying into their employees’ retirement plans.
Nonetheless, an increased employer awareness of pensions as a means to retain or recruit more employees does not seem a widespread phenomenon in the CEE region yet. A spokesperson for law firm Taylor Wessing, which has extensive operations in the region, says: “We do not observe any such trend in CEE.”
Csaba Nagy, chair of the CEEC Forum, underscores the role played by employers in rolling out second-pillar plans. “The employer role is very important in providing information on how the second pillar works,” he stresses. He adds that the genesis of most supplementary pension systems in CEE countries stems from third pillars mainly offered via employers, but always on an individual basis. The second pillar followed on from this, often devised as a split-off from the first pillar – sometimes including employer contributions.
Employer contributions “differ from country to country and depend on a lot of preconditions, the most important being tax incentives”, says Nagy. Gudaitis similarly sees tax benefits as the most important way to increase employer contributions. “When discussions are started about increasing employer contributions, they see the increased labour costs – so what it needs is a consensus to motivate them, most likely via tax benefits,” he says.
Lack of consensus also often holds back growth in supplementary pensions – both in Eastern and Western European countries. Taking Lithuania as an example, Gudaitis says: “We currently have auto-enrolment for individuals into the second pillar, but the new government is considering giving more choice to participants.”
The government coalition, made up of the social democratic LSDP, the democratic green party DSVL, and the nationalist party PPNA, may even reverse the automatic re-enrolment regime that is currently in place. This would mean people have to actively opt out every three years. Estonia introduced opting out in 2023, replacing a previously completely mandatory system. Latvia, on the other hand, still has a mandatory system.
Nagy is keen to stress that while the role of employers is crucial in CEE countries, “due to the difference in our systems, their position is different from their West European peers”. In the case of many occupational pension plans, it was originally the employers who decided when they started, how big they were and how they were invested.
In most CEE countries, foreign employers have to adapt their benefit schemes to the local framework. In Lithuania’s case, Gudaitis notes that employers can either pay into the second or third pillar for their employees. The latter offers more flexibility in terms of withdrawal. “Our supplementary pension system is based on individual accounts. Employees can take their pensions with them when they change employer and that is a flexibility that many occupational pension plans do not have,” he says. Workers are also able to choose between eight providers of pension fund services.
In Poland, the new mandatory system is now fully in place and there is no political debate about changes to pension contributions. However, Damm-Świerkocka says: “Industry experts are talking about the need to increase the maximum limit of the additional contribution, both on the employer’s and the employee’s side.”
With or without increased employer contributions, pension systems in the CEE region are still among the fastest-growing in the OECD, both given their infancy, as well as the demographic make-up in many of these countries.
Poland: PPK versus PPE
In 2018, Poland passed a new law enshrining mandatory second-pillar pensions with auto-enrolment to be implemented by 2022 by all companies – and then Covid struck. However, after a slight delay, all employers with more than 10 employees operating in Poland now offer the new PPK model (Employee Capital Plans) – unless they were already offering the previously available voluntary PPE model (Employee Pension Plans). Some employers offer both.
As at January 2025, the PPK system had 3.7m active participants. By comparison, the PPE system introduced in 2004 has just over 500,000 active participants, but almost half of these only joined the system after the law on the new mandatory PPK had been passed.
Whereas in the PPE system only the employer contributions are mandatory, it is also up to the employer whether to offer such pension plans at all. If they do not offer PPE plans, they are now required to offer PPK plans into which both employers and employees have to contribute.
In both systems, external managers handle the investments. In PPE systems, there are less strict investment regulations in place. Withdrawal from both systems is possible before retirement but only under certain conditions. Upon retirement lump sums or annuities can be chosen.
Lithuania a leader on investment returns
In 2024, Lithuanians accumulated an additional €1.25bn in second-pillar pension funds, bringing total assets under management to over €9bn, which is around 12% of the country’s GDP. The weighted average investment return generated by second-pillar pension funds reached 16.6% last year. In real investment returns, Lithuania is one of the leaders as the life-cycle funds introduced in 2019 mean that for a lot of young people, up to 100% of their pension savings are invested in equities.
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