LITHUANIA – Moody’s Investor Services says the second-pillar pension reform introduced by Lithuania this year could hit government revenues.
“In particular, revenues could fall short because of the introduction of the ‘second pillar’ of the pension reform in January 2004,” Moody’s said in a report on the country.
It noted that four times the expected 100,000 people registered for the voluntary defined contribution scheme – although some of the shortfall would be covered by the Stabilization Reserve Fund.
The new scheme is financed by diverting a portion of social security contributions currently paid into SODRA, the state's social insurance scheme.
Moody’s said: “Although the pension contributions are expected to increase gradually from 2.5% in 2004 to 5.5% in 2007, the scope of the new system may prove insufficient to ensure the sustainability of public finances over the longer term.”
It said extra measure would be needed to strengthen the first, pay-as-you-go, pillar.
“These are expected to include raising the retirement age, strengthening the eligibility requirements for early and disability retirement and reducing generous state pensions.”
The International Monetary Fund has said Lithuania should expand the scope of its pension reform by raising contribution rates, says the International Monetary Fund.
“Lithuania's public sector administration continues to strengthen,” Moody’s said. “Structural reforms have either been implemented or are underway with respect to tax structure, management procedures, municipal finance, health and social security, the labour markets, divestiture of state-owned entities.”