LITHUANIA - The Lithuanian government wants to keep contributions to pension funds capped at 2%, while at the same time opening an opt-out window next year - all of which has been criticised by the local pension fund association.

The Lithuanian parliament is currently discussing a reform proposal issued by the government that would see a three-way split of pension contributions from 2013 if approved, a spokesperson for the social ministry told IPE.

The contribution from the social security system SODRA would remain capped at 2%, a level to which it had been slashed over the past years to help Lithuania cope with a deficit. 

An increase of this contribution level is only planned after 2020, when it is expected to rise to 3.5%.

In addition, people will be allowed to pay 1% of their wages into pension funds from 2013 and as much as 2% from 2016. To encourage these private contributions, the state will pay another 1% and 2%, respectively, of an average wage into a pension fund.

However, people who want to opt out of the second pillar altogether and revert to the pre-2004 system of only paying into SODRA will be given a window between January and September 2012 to do so.

Marijus Kalesinskas, chairman of the board at the Lithuanian Pension Fund Member Association, said it was "premature" to propose further reforms to the pension system before the Constitutional Court had ruled on the earlier actions of the government that have reduced contributions to the second pillar from 5.5% to 2%.

The assocation had filed a lawsuit against the government at the end of last year, but Kalesinskas thinks it will take another year for the court to deal with the case.

"It further reduces the trustworthiness in the pension system, as one more round of changes gets introduced," he said.

He added that, while the government has frequently used pension assets to help in situations of "a strained budget", people will be unable to reduce their contributions in the future should they be unable to pay them from their wages.

Kalesinskas also argued that the new structure will not incentivise people with higher income to pay into pension funds, as the state is only offering a percentage of an average wage as "top-up".

"And people with lower wages earn so little that they would hardly be able to find resources for this additional personal saving," he added.

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