In response to recent initiatives proposing to allow early withdrawal of accumulated capital from the second pillar of the pension system, several Latvian business organisations have signed a Memorandum on Joint Action to Preserve the State-Funded Pension System.
The memorandum was signed by the Foreign Investors’ Council in Latvia (FICIL), the Latvian Employers’ Confederation (LDDK), the Latvian Chamber of Commerce and Industry (LTRK), the Latvian Private Equity and Venture Capital Association, and the Finance Latvia Association.
The organisations emphasise that the state-funded pension system is a crucial pillar of Latvia’s pension framework. Any changes to the pension system should be made only after a careful assessment of their long-term consequences, taking into account demographic trends as well as the impact on the tax burden for the working population.
According to LDDK, the purpose of the memorandum is to ensure coordinated action among the partners in order to preserve the state-funded pension system as an essential pillar of Latvia’s pension framework, strengthen public trust in the pension system, promote sustainable and predictable pension policy, develop financial literacy and a culture of savings and investment, and avoid the negative consequences observed in Estonia following similar decisions.
The memorandum provides for cooperation in developing joint positions and proposals, participation in policy-making processes and dialogue with public authorities, as well as informing the public and organising expert discussions.
Katrīna Zariņa, Chair of the Board of the Latvian Chamber of Commerce and Industry, emphasised that the pension system cannot be assessed through the lens of short-term political considerations. Its dismantling would effectively shift the social burden onto future generations at a time when Latvia’s population is declining.
Meanwhile, Kaspars Gorkšs, Director General of the Latvian Employers’ Confederation, noted that companies in several sectors are currently facing labour shortages, while it is the economically active population whose taxes finance first-pillar pension payments. As the number of such contributors declines, pressure on the social budget inevitably increases. Therefore, any action that weakens the second pension pillar, and consequently the pension system as a whole, would only deepen this problem by reducing future savings while increasing the burden on the state budget.
On 5 March, the Saeima rejected a proposal by the opposition party “Latvija pirmajā vietā” (LPV) to allow residents to withdraw their accumulated savings from the second pillar of the pension system.
Latvia has established a three-pillar pension system. First-pillar pensions are paid to current retirees from social contributions collected in the state budget. The second pillar, the state-funded pension scheme, invests part of employees’ social contributions in financial markets. The third pillar consists of private pension funds into which individuals can make voluntary contributions.