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Latvians wary of state premium pension system

LATVIA – The state second pillar pension system, modelled on the Swedish PPM, will start operations on July 1, but local offices of the State Social Insurance Agency still have a lot to explain to older Latvians before they will join in the initially voluntary system, according to Laima Zilite at the agency.
“ There is still a lot of work for our local offices, because the system completely new to the country, people are not used to investing and they are rather suspicious,” she says.

Latvians who are still under 30 have to contribute 2% of their gross salary to the system initially run by the State Treasury, while those between 30-49 can opt to invest a portion of their salary. The State Treasury will hold the monies until the beginning of 2003, when they will be dealt accordingly between the private investment managers who have applied for a licence to join the system.

“ The state treasury investment panel has two possibilities for investment: Latvian government bonds and domestic bank deposits,” says Zilite.
“ So far there are four licensed Latvian investment companies, but they will also have to get another licence for becoming a manager in the second tier pension system,” she adds.

The current three Latvian financial authorities are going to be merged into one, the Latvian Financial Capital Market Commission, which will take over regulating the whole market on July 1, 2001.
Says Zilite: “ The licensing regulations for investment_managers will be worked out by the end of next year, and the licensing process will then take place during next year. In October 2002 we’ll send out another mail package to the participants, with a list of licensed asset managers.”

Around 250,000 Latvians are expected to join the system through mandatory requirements and some half a million have an option to participate in the premium pension system.

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