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Latvia sets up second pillar

Latvia’s national second pillar pension plan will be launched on July 1, with a little help from the Swedes.
Consultant KPMG’s Stockholm office is developing a PPM-type system to be included in the Latvian State Social Insurance Agency’s (SATUR) structure.
Starting from this summer, Latvian workers will contribute 2% of their gross salary to a national pension fund, managed initially by the state treasury.
“Approximately 250,000 Latvians will have to join in the scheme and then there are about half a million of those who have a choice of joining it, it’s based on age structure. For those under 30 it’s mandatory and for those between 30 and 49 it’s voluntary. No estimates have been made about how many of the employees in the older age group will join the scheme because it is very difficult to say,” says Laima Zilite at the Latvian State Social Insurance Agency.
Andreas Dencker, project leader at KPMG in Sweden, comments: “The difference is that in PPM we have a specific agency that takes care of the pensions, but in Latvia we’ll add a new functionality to an existing agency, the state social insurance agency.”
Currently Latvians pay a 20% contribution to the first tier pension system, which will now be divided into two.
Initially 18% will go to the first pillar scheme, and 2% to the second pillar scheme. Until end-2002 the fund will be invested in government bonds and cash deposits by the treasury. External managers will then be appointed.
“Now we are just focusing on the first phase, and will start planning with the Latvians on what is going to happen when external managers will be involved, I think there will be some local managers by then, but it is difficult to say how many,” adds Dencker.

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