Why to join?
If you were born after July 1, 1971 according to the Law on State Funded Pensions participation in the 2nd pension pillar is cumpolsury and you are automatically registered as a member of the 2nd pension pillar. In its turn, if you were born from July 2, 1951 to July 1, 1971 (inclusive) – you can voluntarly choose to join the 2nd pension pillar or not.
By joining the 2nd pension pillar, you will be able to insure a bigger pension in old age, because it foresees that part of you social security pension contributions through fund managers are invested in financial and capital markets – securities, bonds and other securities, as well as in bank deposits, which provide a greater increase of the investment value in the future. World experience shows that investing value in the longer term has tendency to grow faster than the inflation and the average salary.
The money that is paid to the 1st pension pillar, is used for payment of pensions to the existing generation of pensioners, but money that is transferred to the 2nd pension pillar will be used only for the payment of your pension. In the 1st pension pillar, the information on of how much social security contributions are made to your pension account is recorded, but the money is not accumulated in it. Money is accumulated in the 2nd pension pillar.
In the 1st pensiju pillar registered capital each year shall be indexed according to the increasing average salary in the country, from which the social insurance contributions are made. In its turn, your payed money in the 2nd pension pillar increases depending on the increase of investment value or profit.
Remember! After approval of the membership in the 2nd pension pillar, and after registration of this decision at the SSIA, you can not refuse from it.
An example of how investment plan earns
Here you can see a simplified example, which describes one investment plan with one participant and investments only in 3 objects. It is assumed that all participants have contributed only once and the fund manager has not changed his investment structure during a year.
1) SSIA registers contributions in individual accounts of participants:
Bērziņš – EUR 45
2) SSIA transfers to the investment plan account in the custodian bank EUR 45.00
3) SSIA transfers to the investment plan account in the custodian bank EUR 45.00. The manager reports the value of one unit – EUR 1.0000 and the number of units – 45 units.
4) SSIA divides the estimated units per individual accounts:
Bērziņš – 45 units
5) The manager invests the received money in securities:
30 A shares, price EUR 0.50, sum EUR 15.00
10 B shares, price EUR 1.10, sum EUR 11.00
20 C shares, price EUR 0.95, sum EUR 19.00
Totally invested EUR 45.00
6) Every day the manager carries out the revaluation of the investment, determines the investment value, calculates one unit`s value and reports it to the SSIA;
7) For example, after 12 months the purchased shares have such prices:
30 A shares, price EUR 0.60, sum EUR 18.00
10 B shares, price EUR 1.05, sum EUR 10.50
20 C shares, price EUR 0.09, sum EUR 21.80
Total value of securities EUR 50.30
One investment plan unit`s value is calculated by the following formula:
Value of a unit = value of assets / number of units
So in our example: EUR 50.30 / 45 = EUR 1.1177778
The participant on that day has the following capital in the 2nd pension pillar. Knowing contributions, we can calculate the return on investment:
Bērziņš – contribution EUR 45, number of units 45, value of a unit EUR 1.1177778, capital EUR 50.30, profitability 11.78%
