Q&A

Why the 2nd pension pillar is necessary?
Number of elderly people is increasing in the country, as well as their life expectancy increase, it is therefore the question of particular importance, how to increase the pensions and to ensure material well-being for pensioners.
If there would be no 2nd pension pillar, then the pension increase could be achieved by raising taxes or by withdrawing funds from other sectors, which in turn have a negative impact on the economy and hence the salary and the pension amount.
Whether and how can I join the 2nd pension pillar (state funded pension scheme)?
If you were born after July 1, 1971 and you are socially insured person, then entering the formal job market and you are at least 15 years old, you are automatically registered as a member of the 2nd pension pillar. If you were born from July 2, 1951 to July 1, 1971 (inclusive) – you can voluntarly join the 2nd pension pillar. To do this, you must apply in person at any division of the SSIA or at the SSIA partners for the choice for the state funded pension scheme`s fund manager and investment plan. Along with the choice of fund manager and investment plan you will be registered as a member of the 2nd pension pillar.
What I will gain by joining the 2nd pension pillar?
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 and deposits in banks, which provide a greater increase of the investment value in the future. In addition, 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 pilllar will be used only for payments of your pension.
How often can I change the fund manager and the investment plan?
2nd pension pillar participants may change:
Fund managers once per calendar year;
investment plan at each fund manager twice per calendar year.
Within one calendar year, 2nd pension pillar participant may make five changes of investment plans.
How big contributions to the 2nd pension pillar have to be made?
Engaging in the 2nd pension pillar, supplementary social security contributions are not required. The total amount of contributions to pension funds remain the same – 20% of your salary, which is divided between the 1st pension pillar and the 2nd pension pillar, as shown in the following table:

Contribution division between the 1st and the 2nd pension pillar
20% of salary contributions to the pension

1st pillar 2nd pillar

2001-2006 18% 2%

2007 16% 4%

2008 12% 8%

2009-2012 18% 2%

2013-2014 16% 4%

2015 15% 5%

From 2016 14% 6%
How additional pension savings are made?
Each 2nd pension pillar participant`s accrued contributions for pension increase by investing the money in securities and bank deposits. Long-term global experience shows that, acting on the principle of “money makes money”, pension capital over several decades can increase several times compared to the initial contributions. Contributions are be made by your chosen fund manager, an investment management company licensed for the 2nd pillar funds` management that has entered into an agreement with with the State Social Insurance Agency on the 2nd pension pillar (state funded pension scheme) funds management.
Why you have to choose a fund manager and an investment plan?
In the financial markets there are a lot of different money investment opportunities - from safer investments in Treasury bills and bonds to riskier, but potentially more profitable investments companies` shares. As the financial markets are characterized also by fluctuations, then a knowledgeable and successful investor uses them to their advantage, but uninformed – can also lose. The navigation in the financial markets to be successful, 2nd pension pillar foresees that the pension fund management is entrusted to professional fund managers. Each fund manager can offer a number of investment plans – the rules by which he manages the 2nd pension pillar funds with different level of risk and profit, which depends on that in which securities and deposits your retirement capital will be invested. So you have to be clear about the advantages of each type of investment, as well as you have to know how much you want to risk.
In what currency the investments will be made?
Fund managers invest funds of an investment plan only in such currency by which payments of the 2nd pension pillar capital are made, i.e. lats, in compliance with the following additional conditions:

the funds of the 2nd pension pillar may be invested in currencies unmatched to the obligations if total amount of such investments does not exceed 30 per cent of the assets of the investment plan;
the investments of funds of the 2nd pension pillar in one currency unmatched to the obligations may not exceed 10 per cent of the assets of the investment plan;
investments in euros shall be not be considered as investments in unmatched currencies, i.e. they are equated with lats.
To what to pay attention to when choosing a fund manager and an investment plan?
When choosing a fund manager and an investment plan, you have to pay attention to:

funds investment policy of an investment plan;
experience of a fund manager;
the expected amount of cost for the fund management;
custodian bank, in which to the fund manager entrusted funds will be held;
shareholder`s experience, reputation and stability.

Your pension amount in old age largely depends on your chosen investment plan`s performance! For younger people potentially more profitable will be balanced and active strategies, which funds are partially invested in shares. While people in pre-retirement age may choose a pension plan with a lower risk and more predictable returns.
Do all the investment plans have the same unit value?
The initial unit value of the investment plan is the same for all - 1.00 LVL. Henceforth each unit value of an investment plan will depend on the particular investment plan performance.
How frequently a unit value of investment plan will be determined?
Fund manager determine unit value of investment plan each business day, and shall notify the State Social Insurance Agency, it is published also on the web site: www.manapensija.lv
What happens to the 2nd pension pillar funds if the person dies prior to requesting an old age pension?
If a participant of the the 2nd pension pillar has died prior to requesting an old age pension, the whole funded pension capital registered by the day of the death of the participant of the funded pension scheme shall be included in the special budget of State pensions (i.e. the 1st pension pillar budget) and taken into account when calculating the survivor’s pension to family members who were supported by the dead participant of the 2nd pension pillar in accordance with the Law on State Pensions. This capital can not be inherited by heirs of the the dead participant of the 2nd pension pillar.
How can I get to know how big is the accumulated capital of the 2nd pension pillar?
The data on the accumulated capital of the 2nd pension pillar can be found:
1) by coming in person at any division of the SSIA;
2) on the state and local government joint portal www.latvija.lv (section E-services> Family, Children, Health, Social Services).
Where will the accumulated funds stay, if the license of a fund manager will be annulled?
The licence of the manager of funds of the funded pension scheme for the provision of investment management services is annulled

Ff the license of a fund manager will be annulled, the SSIA will transfer the accumulated funds to other fund managers and inform the participants of the 2nd pension pillar on withdrawal of the license to previously selected fund manager and on the registration in the new investment plan, as well as on the right to choose any other fund manager, indicating the investment plan. From the moment that the license has been annulled until the moment, when the SSIA will have chosen other fund manager, fund manager functions will be performed by the custodian bank.

Does a participant, who voluntarily joined the 2nd pension pillar, may after some time change his/her mind and to refuse from further participation in the 2nd pension pillar?

No, the participants of the 2nd pension pillar (not those who have joined it voluntarily, not the ones that are required to be registered compulsory) can not themselves refuse to participate in the 2nd pension pillar.
How safe is my pension invested?
State shall issue the 2nd pension pillar`s (state funded pension schemes) the state`s statutory regulations and ensures compliance monitoring, guarantees monitoring of the fund managers and custodian banks, approves investment rules, issues licenses and performs other statutory actions that foresee strong control over work of fund managers. Custodian banks the 2nd pension pillar funds keep separate from their own assets. So the money invested in the 2nd pension pillar can not be lost, even if the the custodian bank or the fund manager go bankrupt.
Who monitores the operation of the 2nd pension pillar?
Monitoring is based on a double safety mechanism. Firstly, from the part of the the state 2nd pension pillar fund investment is supervised by the Financial and Capital Market Commission. Secondly, fund managers are monitored by the custodian bank of the accumulated money, because the monitoring of the in the 2nd pension pillar money is managed separately from its storage. This means that the money is managed by licensed investment management companies, but the 2nd pension pillar funds are kept in a custodian bank, and a fund manager makes transactions with the funds through a custodian bank. Indirectly, funds managers are also monitored by the 2nd pension pillar participants themselves. Manager shall be required to provide regular information to the SSIA, so that it could provide information on fund manager performance and investment plans to the 2nd pension pillar participants.
Why was the 2nd pension pillar introduced?
The 2nd pension pillar (state funded pension scheme) started its operations on 1 July 2001 according the Law on State Funded Pensions adopted by the Parliament on February 17, 2000 and is administered by the SSIA. The goal of the 2nd pension pillar is to obtain an increase in pension, not increasing the total social security contribution rate of the state old age pensions (currently 20% of gross salary), part of the contributions investing in the capital market to make a return.
If the participant of the 2nd pension pillar will choose to purchase a life time pension insurance policy, what will be the contract conclusion procedure?
If the participant of the 2nd pension pillar will choose to purchase a life pension insurance policy, a life assurance contract will be concluded at the insurance company of his choice. The insurance company will inform the SSIA on the concluded contract when it will become indisputable, and then the SSIA will transfer to the insurance company the accrued capital of the 2nd pension pillar.
What are the differences between the 2nd pension pillar capital payment in the form of a life pension insurance policy and combining this capital with the accumulated capital of the 1st pension pillar?
If a participant of the 2nd pension pillar for his/her accumulated capital will choose to purchase a life pension insurance policy, then the participant:

old age pension will receive from two sources – a state special pension budget and from the insurance company;
will be able to postpone the start of the payment of the 2nd pension pillar, but not more than 10 years;
will be able to foresee several periods, but not more than three, during which the different amount of the pension will be determined;
will be able to specify beneficiary (heir).

The insurance company may grant a bonus or extra profits by increasing the pension to be paid once a year.

Adding the 2nd pension pillar capital to the 1st pension pillar capital, the amount of pension and costs and the payment period can not be changed, as well as the pension is paid from one source - the state special pension budget and in accordance with the Law on State Pensions and it is indexed. In this case, the accumulated funds of the 2nd pension pillar are not inheritable.

At the moment, the SSIA has not concluded contracts with insurance companies that would offer the participants of the 2nd pension pillar to purchase life pension insurance policies. Consequently, the accumulated pension capital of the 2nd pension pillar can be used only by adding it to the old age pension.
Can the 2nd pension pillar capital be inherited?
A life pension insurance contract may specify the beneficiaries. The beneficiary can be any person designated in the life pension insurance policy contract. From the date of death of the insured person until the end of the guaranteed payment of the life pension, the estimated life pension is paid to a beneficiary.
Who will be able to sell life pension insurance policies?
Life pension insurance policies will be able to sell life insurance companies, which according to the law will have received a license for life insurance and will have concluded contracts with the SSIA. At the moment, the SSIA has not concluded contracts with insurance companies that would offer the participants of the 2nd pension pillar to purchase life pension insurance policies. Consequently, the accumulated pension capital of the 2nd pension pillar can be used only by adding it to the old age pension.
What are the investment plans?
Investment plans are pre-approved investment rules, according to which investing of the 2nd pension pillar funds takes place.
All funds of the investment plan are expressed in units of the investment plan, which is used for recording funds and in dealing with these funds. Value of each unit of the plan at the start of the plan is LVL 1. Henceforth Value of each unit varies depending on the investment performance of the plan.

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