Yield on funded pension schemes provided by financial institutions should be higher - PM

RIGA - The profitability of funded pension schemes provided by financial institutions should have been much better, Prime Minister Evika Silina (New Unity) said in an interview to the Latvian public television on Wednesday.

The politician defended the government's intention to transfer part of the second tier of pensions to the first tier of pension schemes, adding that such a change would be a temporary solution.

Silina insisted that the state was able to ensure better pension returns in the first pension tier, but that financial institutions should perform better in the second pension tier. "It should have been much more profitable," the politician reasoned.

Silina explained the opposition to the proposed changes by the credit institutions' advocacy of their own profits and interests. They proposed instead to raise the value added tax rate, the prime minister added.

In the Prime Minister's view, the upcoming budget for next year is balanced overall, but additional spending would be challenging.

The politician promised that the government would continue to work on austerity measures, with the aim of achieving a 5 percent reduction in spending next year.

As reported, on October 8, the government on Tuesday supported amendments to the Law on State Funded Pensions prepared by the Welfare Ministry, which stipulate that one percentage point of contributions to pension schemes will be transferred from the second-pillar or state-funded pension scheme to the first pillar or state compulsory unfunded pension scheme from January 1, 2025 to December 31, 2028.

This change has been widely criticized by both citizens and businesses, including banks.

The Welfare Ministry explains that this will make it possible to reduce labor taxes and possibly contribute to the overall amount of future pensions.

The ministry points out that pensions are made up of capital accumulated in both the first and second pillars of the pension scheme. In situations of significant volatility on financial markets, value of the capital accumulated in the second pillar pension scheme falls, while recovery of the capital market is rather slow, the ministry explains.