LATVIA - The Latvian government is planning to reduce its budget deficit for 2009 by LVL500m (€714.3m) but intends to do so, among other routes, through a major cut in pension payouts.

A statement issued by the government said an agreement was reached last Thursday (11 June) between the government, the Free Trade Union Federation, the Employers Confederation, the Association of Local and Regional Governments, the Chamber of Commerce and Industry and the Pensioners Federation to cut the pension received by working pensioners by 70% from 1 July until 31 December 2012, in a bid to save LVL37.8m.

At the same time, retirement pensions and length-of-service pensions already in payment are being reduced to save LVL30.5m, which is expected to equate to a 10% drop in pension benefits paid.

There is no mention, however, of whether the employee occupational pension contribution rate to pensions is set to rise again. Latvia froze the employee contribution rate at 8% for 2008 and it was set to rise to 9% in 2009 and 10% the year after, but no mention has been made so far.

The latest changes to pension benefits were outlined as just a small part of a wider major reworking of government spending which is likely to lead to significant job losses and a 20% cut in the civil service workforce and the cutting in half of the number of state agencies and their spending.

The refinancing programme was one of the requirements imposed by the International Monetary Fund following its €1.86bn rescue loan agreement in March.

A bill now has to be passed to finalise the changes.

This latest move comes after the European Commission only recently warned in a review of public pensions spending that European Union governments were going to need to address the funding gaps and its impact on GDP. (See earlier IPE story: Pension reforms to lessen gov’t spending initially)

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