Lithuania’s parliament, Seimas, on Thursday approved a sweeping reform of the country’s privately administered second-pillar pension system, giving citizens greater freedom to opt out of the programme and withdraw part of their savings.
Under the changes, automatic enrolment in the pension accumulation system will be eliminated, and individuals will be allowed to fully exit the system or make a one-time withdrawal of 25% of their savings. Those diagnosed with a serious illness will be permitted to withdraw the full amount. Participants who continue saving will retain the current 1.5% state contribution.
The amendments to the Law on Pension Accumulation passed with support from 88 members of the Seimas, while 19 voted against and five abstained.
The reform was broadly welcomed by the ruling coalition and some opposition members. Rita Tamašunienė of the Farmers, Greens, and Christian Families Union said the law would give people more flexibility in planning for retirement. However, conservative lawmaker Paulė Kuzmickienė criticised the reform, arguing it would not lead to higher pensions.
The final version of the reform closely follows the proposal submitted by the cabinet, with coalition partners previously agreeing not to alter the government’s draft.
The legislation introduces a 24-month “opt-out window” running from January 2026 through the end of 2027, during which participants can exit the system. Individuals wishing to withdraw 25% of their savings before retirement will face a 3% tax on the amount. Those who make the withdrawal after reaching retirement age will not be taxed.
Participants who have accumulated between €5,400 and €10,800 in private pension funds will be allowed to withdraw the full amount tax-free, but only during the designated opt-out window.
If a person decides to exit the system entirely, their contributions will be returned minus the 3% withdrawal fee. The investment gains will remain tax-free, but the government’s co-contributions will be redirected to the state-run Sodra pension system and will not be returned to the individual.
While the government says the reform enhances personal choice, the business sector has expressed concerns that it could lead to mass withdrawals and weaken investment in pension funds. Social Security and Labour Minister Inga Ruginienė has said that up to 20% of current participants may opt out.
The International Monetary Fund warned earlier this month that the changes could lead to lower pensions in the future and increase pressure on public finances as the population ages. The European Commission cautioned that the reform could hamper the development of Lithuania’s capital markets and reduce funding opportunities for financial market participants.
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