Pension system


Since July 2001, there is a 3 pillar pension system in Latvia. It includes the 1st pillar (state compulsory unfunded pension scheme), the 2nd pillar (state funded pension scheme) and the 3rd pillar (private voluntary pension scheme). Functionality and purpose of each pillar are different, in order to ensure the stability of the pension system and reduce demographic or financial risk for each pillar separately.

It is a system that combines both each person`s personal interest in well provided old age and intergenerational solidarity.  The underlying principle of the system is: the larger the contributions made today are, the larger the pension will be tomorrow. Simultaneous existence of all the three pension pillars ensures the stability of the system, because it reduces the eventual demographic or financial risk for each of the pillars.

In the 1st pension pillar all persons making social insurance contributions are involved. Paid contributions are used for payment of old age pensions to the existing generation of pensioners, as well as the information for the pension is registered in each contributor`s personal account. Prior to the pension calculation, the pension capital is updated – the amount of pension is recalculated in accordance with the laws and regulations.

Part of the social contributions is channeled to the 2nd pension pillar – or the accumulative pension scheme. Then the social insurance contributions are channeled to your chosen investment plan, where the pension plan manager invests them in the financial markets. Investing in the financial markets allows you to not only to save the accumulated amount of the pension, but also to increase its value. These funds are accumulated in a private account set especially for you and from them your monthly pension will be paid.

In addition, you can also make voluntary contributions to the 3rd pension pillar – private voluntary pension scheme. You can make contributions personally or through your employer to one of the private pension funds. These contributions, like in the 2nd pension pillar, through the managers are invested in the financial markets. You can receive this pension from the age of 55 – before reaching retirement age, as well as, if the contributions you make by yourself, you can receive a partial income tax refund.

Only the activity of all the three pension pillars will ensure your well-being in old age!