From January 1, Lithuania will introduce changes to its second pension pillar. Experts remain divided on whether it is worth withdrawing for those already enrolled – or joining for those who have not yet signed up.
Some specialists urge people to make their own independent decision. LRT.lt answers the key questions: what exactly is the second pension pillar, how will it change, and what are pension annuities?
What is the second pension pillar?
Lithuania’s pension system is built on three pillars.
The first pillar is the state pension, administered through Sodra (the State Social Insurance Fund). All employees effectivelly participate in this scheme automatically, paying compulsory social insurance contributions. Pension amounts are calculated on the basis of so-called “pension points”, which reflect a person’s contribution history and years of service.
The second pillar is voluntary. Under the current rules, employees contribute 3% of their gross salary, while the state adds a further 1.5% of the national average wage.
Until now, on January 2, each year, anyone not already saving – and who had not opted out in the previous three years – was automatically enrolled. Workers wishing not to participate had six months to decline; otherwise they remained in the system and could not later leave. From January 1, 2026, this rule and other conditions will change.
The third pillar resembles the second, but is entirely voluntary: workers are never automatically enrolled and the state does not top up contributions.
How will the second pillar change from January 1?
Workers will no longer be automatically enrolled. Instead, they will simply be reminded of the option to save.
Those already saving will be given a two-year window to withdraw.
Savers will be able to choose whether to contribute 3% of gross salary or more, with the option to reduce contributions again later.
They may also pause contributions for one year, with the possibility of extending this break.
Once during the saving period, participants will be allowed to withdraw up to 25% of their accumulated funds – though no more than their own contributions. If unused, this option will remain available upon retirement without extra tax.
Full withdrawals before retirement will be permitted in specific cases: if a person loses 70% or more of working capacity, is diagnosed with a serious illness on the Health Ministry’s list, or requires palliative care. Previously, even in such cases, early withdrawal was not possible.
The current thresholds determining whether a retiree must buy an annuity, withdraw in instalments, or take a lump sum will be abolished.
How do I start saving in the second pillar?
It requires a contract with one of Lithuania’s six pension fund managers: SEB, Artea, Swedbank, Luminor, Allianz, or Goindex.
Upon entering a contract, each month, 3% of gross salary is automatically transferred into the chosen fund. The calculation is made on pre-tax income, not take-home pay. No further action is required by the saver.
What changes for those who remain?
For current participants, little will change – apart from the new flexibility, previously mentioned above. This includes the ability to pause payments, to withdraw part of the savings, or in certain cases, to take out all funds before retirement.
The state will continue to add 1.5% of the national average wage. In 2025 this is worth €30.33 per month.
For those nearing retirement, the main change concerns withdrawals. From January, there will be only two options 1: either take a lump sum or instalments, or purchasing an annuity. Which applies will depend on the total accumulated amount.
What is a pension annuity?
According to Sodra, an annuity is a product whereby, after paying a one-off premium from second pillar savings, a person receives fixed monthly payments for life.
A pension annuity costs as much as a saver has accumulated in their second pillar pension fund. Only those with exceptionally large savings, or those opting for a deferred annuity, are not required to allocate the entire sum.
In the first case, if an individual has saved more than the maximum threshold, they may withdraw the excess as a lump sum, while the remaining amount up to the limit must go towards an annuity.
In 2025, anyone with savings above €64,841 can withdraw the surplus. From next year, however, the calculation will change.
How will the calculation change?
Starting 2026, the annuity thresholds will be linked to the average state pension, rather than fixed amounts. The minimum compulsory threshold will rise to 10% of the average old-age pension in the first quarter of the previous year, and the maximum will be set at 50%. Individuals will not need to calculate these figures themselves – they will simply replace the current indexed thresholds.
The official threshold, above which an annuity becomes compulsory, will be announced in December.
What types of pension annuities are there?
There are three main types of annuity in Lithuania’s second pillar pension system:
1. Standard pension annuity
This is purchased using the entire amount saved in a pension fund. It guarantees that Sodra will pay a fixed monthly income for the rest of a person’s life.
2. Standard annuity with an inheritance option
Also bought with the full savings, this version works like the standard annuity but allows for inheritance. If the annuitant dies before the age of 80, their heirs receive a lump sum covering the unpaid instalments.
3. Deferred annuity
This is bought with only part of the savings. The remainder is paid out in instalments by the pension company (not Sodra) until the saver turns 85. From that point onwards, Sodra begins to pay a stable monthly income for life.
During the instalment phase, the payments may fluctuate depending on investment results, but any funds left in the pension account remain inheritable. Once the transition is made to Sodra payments at 85, the income is stable but no longer inheritable.
Will I get back all the money I’ve saved?
The answer depends on several factors.
A 2.5% administration fee applies to all annuities to cover costs throughout the recipient’s lifetime.
How much is ultimately received depends on the type of annuity chosen and how long the recipient lives. Those who live for only a short period after retirement may not recoup their entire savings. By contrast, those who live longer could receive more than they originally put in.
While Sodra guarantees stable payments that will not fall, the funds continue to be invested. If the investments generate a profit, this may increase the pension income over time.
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