OECD experts will help implement a centralised annuity system in Lithuania

Date

2019 05 27

Rating
3
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Lithuania has reformed the second pillar pension system as of 2019, and the Social Insurance Fund Board (SODRA) will become the centralised pension annuity provider from 2020. A decision has already been made with regard to assigning the function of paying pension annuities to a separate unit established in SODRA, and the annuity fund will be strictly separated from public finances. The currently effective law provides for two types of pension annuity: standard and deferred. These annuities will supplement the social insurance pension paid by SODRA. This model has been chosen with the objective of reducing costs for residents. Previously concluded contracts with private life insurance companies will remain in force. 

The Law on the Accumulation of Pensions establishes that the participants of the second pillar pension system who have accumulated at least EUR 10 000 will have to acquire a pension annuity upon attaining retirement age, i.e. the right to receive periodical payments for life. The income limit for acquisition of a pension annuity will be revised every five years, taking into account the changes in the Lithuania Harmonised Index of Consumer Prices and the change in mortality rates. A person whose assets accumulated in a pension fund exceed EUR 60 000 is entitled to receive the accumulated part of pension assets exceeding EUR 60 000 as a lump sum.

SODRA will take up the functions of a pension annuity provider at the beginning of next year. Experts from the Organisation for Economic Cooperation and Development (OECD), in the Private Pensions Unit of the OECD Directorate for Financial and Enterprise Affairs, are planning to come to Lithuania for an initial mission on 27–29 May to help ensure a successful start of this service, draw up a detailed action plan for the next few years and develop a long-term strategy.

This project is financed by the European Union through the Structural Reform Support Programme and implemented in cooperation with the European Commission.

The OECD team will draw upon international experience (e.g. Denmark, Hong-Kong China, Singapore, and Sweden) to support its work. Its working relationship with these countries allows it to bring a unique perspective of the strengths and weaknesses of different design arrangements and the legislation necessary to help ensure a well-functioning centralised annuity provider.

During the first stage of the project, OECD experts will help SODRA prepare for the most important function – to provide pension annuities to the first clients as of next year. A detailed action plan for two to three years and a long-term strategy will be developed during the second stage. The OECD assistance will relate to matters including the setup of legal and governance frameworks, administrative and operational structures, the design of life annuity products and of an investment policy, and communication to the public of information on annuity products.

OECD experts contributing to this project have excellent record on the topic.

The OECD team will be led by Pablo Antolin. He is the Head of the Private Pensions Unit and Deputy Head of the Insurance, Private Pensions and Financial Markets Division of the OECD. In the past, he has worked on the impact of ageing populations on the economy and on public finances. He has produced several studies examining options available to reform pension systems in several OECD countries, including public pensions. Mr. Antolin has a PhD in Economics from the University of Oxford and an undergraduate degree in Economics from the University of Alicante (Spain).

Other OECD experts involved in this project have experience on actuarial science, pension policy, governance, investments, supervision, tax arrangements, and statistics.

About the Structural Reform Support Service

The Structural Reform Support Service helps EU countries to prepare, design and implement reforms. The support is based purely on demand and is tailor-made for the beneficiary Member State. It takes the form of strategic or legal advice, studies, training and in-country missions by experts. Since 2015, the Structural Reform Support Service has engaged, through the Structural Reform Support Programme or other sources, in more than 760 projects in 26 Member States.