About 40 percent of participants in Lithuania’s private second-pillar pension system, or around 580,000 people, have opted to withdraw all or part of their savings following the liberalisation of the scheme earlier this year.
The Lithuanian Investment and Pension Funds Association said on Tuesday that 515,000 savers, representing 37 percent of the system, withdrew their total contributions along with investment returns. An additional 65,400 participants exited due to illness or approaching retirement, or chose to withdraw 25 percent of their accumulated funds.
Total payouts to these groups amounted to approximately 2.9 billion euros and 255.8 million euros, respectively.
Meanwhile, about 1.3 billion euros in contributions previously paid into the funds were transferred back to the state social insurance fund, Sodra.
Of the 2.9 billion euros paid out, personal contributions accounted for 1.4 billion euros, while investment returns made up 1.5 billion euros. On average, individuals received 5,600 euros, consisting of 2,700 euros in personal contributions and 2,900 euros in returns earned by the funds.
The Lithuanian parliament last year passed a law allowing savers in private pension funds – the so-called second-pillar system – a two-year window to withdraw their savings.
The law responds to criticism of the system which involved automatic enrolment, no possibility to opt out after a six-month deadline, and very limited opportunities to access the funds before retirement.
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Young people lead withdrawals
Younger workers have led withdrawals from the second-pillar pension system following the new rules, a senior official at state social insurance fund Sodra said.
“We observe that the highest withdrawal rates were among young people aged 25 to 35. The older the participants, the lower the withdrawal rate. In terms of income levels, those earning around the average wage were most likely to exit. Higher earners were less inclined to stop saving,” Sodra Deputy Director Violeta Latvienė said on Wednesday.
“One might have hoped for the opposite, as lower-income individuals should be the most interested in saving for retirement to ensure dignity in old age. However, younger people still have time ahead of them, and we see that some are signing new contracts even after terminating previous ones,” Latvienė added.
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