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Polish actions embolden second-pillar pension critics in Lithuania

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Poland’s decision to appropriate its second-pillar pension assets to fix its public finances has inevitably started to raise questions in the region about the viability of using public social contributions to fund privately run pension funds.

In early October, in neighbouring Lithuania, Stasys Jakeliūnas, financial affairs adviser to prime minister Algirdas Butkevičius, called for a suspension of contributions to the voluntary second pillar as of January 2014.

He argued that the system was making the financial position of SoDra, the social insurance fund responsible for the first pillar and other benefits, increasingly unstable.

Jakeliūnas has been backed by some other members of the Social Democratic Party – the largest in the ruling four-party centre-left coalition that took power following the October 2012 election – including Algirdas Sysas, deputy speaker of the Seimas (Parliament), who has also hinted at nationalising the second pillar.

In November 2012, the new Parliament voted in the previous government’s pension reform.

This raised the members’ second-pillar contribution from 1.5% to 2.5% in 2013.

In 2014, members can make an additional contribution of 1%, matched by a state contribution of 1% of the national average wage.

In 2016-19, the additional member and state contributions rise to 2%.

Workers who joined the voluntary second pillar in 2013 have to make the additional contribution, while existing members have until 30 November to decide whether to pay extra, leave the system altogether or continue paying only the base contribution, which falls to 2% in 2014-19.

Those who fail to declare their intention remain in the second pillar under the old terms.

Given the November deadline, Jakeliūnas’s timing was unfortunate.

Marijus Kalesinskas, chairman of the board of the Lithuanian Pension Fund Members’ Association, said: “I guess his intention was good to stimulate a debate on how to further improve the pension system, but it came out at a wrong time and in a wrong context.

“Some long-term critics of the funded pensions were quick to support his proposal and to further suggest nationalisation of the second-pillar pension assets.

“That increases the confusion among those pension savers who need to make up their mind at the moment and among quite a few of those who already have.

“People are left with a sense of insecurity, not knowing what further to expect from the government and the politicians.”

Fortunately for the second pillar’s supporters, the prime minister has not opened up a debate on the subject, and neither SoDra’s nor the state draft 2014 budgets currently before Parliament assume any changes.

Lithuania’s public finances are in somewhat better shape than in Poland, which used the size of its deficit and public debt to shrink the second pillar drastically.

In Lithuania’s case, the key policy objective has been to get this year’s budget deficit to within 3% of GDP to qualify for euro membership in 2015.

According to Kalesinskas, suspending the second-pillar contributions in 2013 would have decreased the budget deficit by only LTL500m (€145m) and by LTL500m-600m the following year.

“That would hardly be decisive for the 3% Maastricht criteria,” he told IPE.

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