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Social insurance old-age pensions

Social insurance old-age pensions (hereinafter referred to as the ‘old-age pension‘) is the main type of state social security in old age.

Individuals who meet the requirements for age and for the pension social insurance record are entitled to the old-age pension, i. e.:

1) the person has reached the established old-age pension age; and

2) has the minimum record of pension social insurance established for old-age pension (have paid the pension social insurance contributions for at least 15 years).

The pension social insurance record is the period during which the obligatory pension social insurance payments are made or must be made either by the person or on his/her behalf.

Starting from 2018, the obligatory pension social insurance record requirement will increase. In 2018 the mandatory record will be 30 years and 6 months and is increased in every subsequent year until it reaches 35 years in 2027.

 

A new version of the Law on Social Insurance Pensions will come into force on 1 January 2018. The pension system will be reformed by changing the pension structure, introducing pension points and setting the indexation rules. A social insurance pension will consist of the general and individual parts.

 

The general part of pension will replace the basic part of pension and the bonus for the length of record.

 

The individual part of pension will replace the supplementary part of pension.

 

Pension points system. A system of pension points for the determination of the individual part of pension was introduced on 1 January 2018. Each insured person will receive a certain number of pension points for the amount of pension social insurance contributions paid during the year. If the amount of pension social insurance contributions deducted from the person‘s pay during the year for the individual part of pension is equal to the amount of the annual pension contribution determined on the basis of the average pay during the year, the person will acquire one pension point. A larger or a smaller amount paid will result, accordingly, in a larger or smaller number of pension points, however, the total number of pension points acquired during one year may not exceed 5. The pension points acquired will be summed up and multiplied by the pension point value. In this way the individual part of pension will be determined.

 

The old-age pension is equal to the sum of the general and the individual parts of pension.

The general part of pension is calculated according to the formula

β × B, where

β is the ratio of the insurance record of the person and the obligatory insurance record effective in the year of the pension entitlement. If the ration is less than one, then the ratio is equal to 1;

 B is the basic pension (in euros).

The individual part of pension is calculated according to the formula

V × p, where

V is the number of pension points accumulated by the person;

p is the pension point value (in euros).

 

Pension indexation rules

Starting from 1 January every year, the values of the basic pension and the value of pension point as well as the basic amount of widows/widowers pensions, used for the granting and determining social insurance pensions, will be indexed based on the average 7-year wage fund growth rate.

The indexing coefficient (IC) is calculated on the basis of the change in the wage fund during the past three years, the year for which the IC is being calculated, and three prospective years.

The IC is applied provided that, upon its application, the pension social insurance costs in the year of indexation do not exceed social insurance revenues and provided that the projected pension social insurance costs for the next year do not start exceeding the social insurance revenues projected.

If, without indexation, the pension social insurance revenues in the year of indexation exceed the pension social insurance costs, the IC is calculated in such a way that the pension social insurance expenses for pension indexing would not exceed 75 % of the pension social insurance contribution surplus planned for the year of indexation in case if no indexation is performed.

From 2022 the individual part of pension is indexated additionally by adding an additional index to the IK calculated in accordance with the established procedure - calculated in such a way that the additional funds to be used for indexing the individual part of the pension do not exceed 75 per cent of the planned positive cash flow result of the State Social Insurance Fund. The individual part of pension is indexated, if the latest at-risk-of-poverty rate for persons aged 65 and over published by Statistics Lithuania is higher than 25 per cent and / or the ratio of the average old-age pension projected in the indexation year to the projected average net earnings in that year is less than 50 per cent.

Indexation will not be performed if the determined IC is smaller than 1.01 and/or if the change in the gross domestic product at comparative prices and in the wage funds, expressed in percentage terms, is negative in the year for which the IC is being calculated and/or for next calendar year. If no indexation is performed, the values of December of previous year are applied.

Last updated: 03-01-2022