LITHUANIA – The International Monetary Fund says Lithuania’s current pension system is unsustainable and that meaningful reform has been postponed.

“The ageing of the population represents a serious challenge to the current pension system, which is unsustainable,” the IMF says in a new report on the Baltic state.

“While some steps have been taken to introduce a fully-funded second pillar, meaningful pension reform has essentially been postponed due to short-term cost considerations.”

“It is critical to set the system on a sustainable footing, the IMF adds. It said the surplus projected over the coming decade at the State Social Insurance Fund Board, or SoDra – which is due to a temporary reduction in the number of pensioners per worker - should not be spent on increasing benefits, but “saved for the future”.

According to its web site, SoDra had a surplus of 10.6 million litas (three million euros) at the end of 2001.

The IMF says it recognizes the pressures to raise pensions, but any increases should be financed through new measures, such as increasing the retirement age.

The government has laid out a reform agenda, including the combining of graduated and cumulative pension schemes to preserve the independence of the State Social Insurance System and exploring the possibility of indexing pensions to inflation.

It aims to reform the pension system so that private cumulative pension funds can function alongside state social insurance.

The IMF visited Lithuania between June 3-13. “In the space of a few years, Lithuania has transformed its economy and is now poised to join the European Union in May 2004.

“At present, the Lithuanian economy appears set to continue its rapid expansion with very low inflation.”

One of the government’s aims is “to create a favourable legal framework and tax environment for the activities of institutional investors, namely, all types of investment companies, pension funds, insurance companies, etc.”.