LITHUANIA - Pension assets in Lithuania are under threat of nationalization, the chairman of the Lithuanian Pension Fund Member Association (LPFMA) has warned as its parliament legislated a 25% reduction in contributions to the second pillar.

Speaking to IPE days after the Hungarian government announced an indefinite contribution freeze to its private pension pillar - essentially forcing members to transfer savings to the state-run pay-as-you-go system - LPFMA’s chairman of the board Marijus Kalesinskas said that politicians in his country were informally entertaining similar ideas.

“This is not yet the official position, but informally in the political discussions they are already referring to the Hungarian example as a good one and one to follow,” he said.

Kalesinskas said the reduced contribution rate - down by 0.5 percentage points to 1.5% after earlier cuts to 3% of income - was still awaiting ascent from president Dalia Grybauskaitė after a successful parliamentary vote yesterday.

He added that it was “perhaps an acceptable compromise” in light of discussions to completely halt contributions to the country’s second pillar and noted that this could at least delay or even stop discussions about the nationalization of the country’s €1.2bn pension assets.

“As a temporary solution, perhaps it is still better that the system is kept at these levels, rather than being totally destroyed.”

The organisation was still awaiting a hearing in Lithuania’s constitutional court regarding the initial reduction in contributions from 5.5% to 3%. The change, legislated in 2008, was initially meant to be temporary but was soon followed by a further cut to 2%.

Kalesinskas said it was still possible the court would rule the initial cut unconstitutional, necessitating a rebate from government and noted one important change between Lithuania and Hungary - which next year will introduce a new constitution removing responsibility for fiscal oversight from its highest court’s remit.

“Importantly, I would say the big difference in our case compared to Hungary is that our country has a constitution that cannot be changed by parliament,” he said.

The chairman estimated that up to €450m in contributions had been lost since the initial reduction, but said that liberal politicians within the country’s coalition government were coming to the realization that the changes risked “crippling” the second pillar - launched in 2004 - and would only increase pension expenditure in future.

Lithuania reported a comparatively low debt to GDP ratio of 38.2% last year.

However, Allianz Global Investors recently listed its government among a number of central and eastern European countries who had “put their hand into the proverbial pension-fund cookie jar” in an effort to improve exchequer figures.