After Latvia regained independence there was a need to establish a pension system consistent with new market economy principles. Initial attempts, stipulated in the 1990 Law on State Pensions, proved to be too generous and financially unreasonable. Therefore one of the main tasks at this time was to set up a financially sustainable pension system, which created favourable incentives to make social contributions.
In 1995, parliament adopted the Pension Reform Concept, which proposed the introduction of a state funded pension scheme and private voluntary pension scheme. These, along with the state compulsory unfunded pension scheme, would form a three-pillar pension system. The state compulsory unfunded pension scheme was introduced in 1996 encouraging the solidarity of generations, meaning that current benefits and pensions are financed from the current social insurance contributions. Since 1998, persons can also make voluntary contributions to the private voluntary pension scheme, ensuring additional capital in old age. In 2001, the state funded pension scheme was introduced and currently part of the social contributions are channelled to the chosen investment plan in such a way that it saves the accumulated amount of the pension and also increases its value. Therefore the amount of each pension depends on the contributions and can be increased by contributing more or delaying retirement to older age, in contrast to the pension system prior to the reform, when the amount of pensions depended only on the length of service and the average salary in the state.
The combination of the individual’s interest in a secured old age with solidarity of generations and the existence of the three pension pillars ensure the stability of the pension system, since at every level it squares the probable demographic or financial risk typical of each of these pillars.
Taking into consideration that current demographic trends in Latvia indicate ageing and depopulation trends, especially of the working age population, changes aimed at ensuring the long-term sustainability of the pension system and dealing with demographic challenges were introduced and incorporated in the 1995 Law on State Pensions. Since 2014, the general retirement age is undergoing a process of gradual increase, from 62 years in 2014, by three month every year until reaching the age of 65 years in 2025. The minimum length of social insurance coverage necessary in order to be eligible to receive an old-age pension has also increased from ten to 15 years, and will further increase from 15 to 20 years starting in 2025.
Activation policies for people ages 50+
The Labour Law facilitates favourable conditions for the employment of older workers, as it provides equal rights to work, regardless of age, and in the case of a reduction in the number of employees, the preference of continuing employment relations with, among others, employees for whom less than five years remain until reaching the age of retirement, if performance results and qualifications do not substantially differ.
Statistical data also shows that Latvia performs relatively well concerning the employment rate of people at older ages. According to Eurostat data, in the second quarter of 2015, the employment rate of persons aged 50-64 in Latvia was 65.1 %, which was 3.4 percentage points higher than the EU average. However, at the same time there are challenges in terms of unemployment, including long-term unemployment. In the second quarter of 2015, the unemployment rate in Latvia for this age group was 9.3 % while the EU average unemployment rate was 7.1 %. Therefore older workers who are registered as unemployed can participate in active employment measures offered by the State Employment Agency, which is the administration institution under the supervision of the Ministry of Welfare that implements state policy to decrease unemployment and the number of unemployed. Involvement in these measures is primarily based on the needs of the unemployed, so as a result of profiling, older persons are involved in the most appropriate and best-suited measures sequenced in a way that would ensure the best and most effective labour market outcome.
Only certain measures have involvement criteria based on age favouring the older unemployed. Persons aged 55+ is one of the target groups of the active employment measure “Measure for unemployed representing disadvantaged groups”, the aim of which is to employ the unemployed in state co-financed jobs in order to help them understand labour market demands, to promote finding a regular job, and to integrate the unemployed from the target groups in society. Additionally, persons aged 45+ is one of the target groups of educational programmes for adults which are aimed at supplementing and improving the knowledge and skills necessary for the employment of persons at risk of unemployment through participation in lifelong learning. Additionally, if not more than five years remain before an individual reaches pension age (except in the case of receiving an old-age pension before term), that individual has the right to receive repayment of the financial resources intended for training in full amount (for others, in the amount of 70 % of the training costs).
Further, taking into consideration the demographic challenges concerning ageing and depopulation in Latvia, an active ageing strategy for longer and better working lives is currently being developed by the government in order to widen the range and design of services for older people. This way, the government aims to ensure that along with increasing retirement age appropriate support and measures are available for older persons, which enable them to stay in the labour market for a longer time.
Early Retirement Policies
Current retirement provisions state that early retirement is possible two years before reaching the general retirement age if a person has been insured for at least 30 years. Since 2014, the general retirement age has been gradually increasing, from 62 years in 2014, by three months every year, and the early retirement age is increasing accordingly, which is stipulated in the 1995 Law on State Pensions.
Apart from the aforementioned early retirement possibility, the following persons have the right to request the old-age pension five years before the general retirement age:
- The parent or guardian of a child who has been insured for not less than 25 years if he or she in the period before the child reached the age of 18 cared for five or more children for not less than eight years, or has cared for a child who according to the procedure established by the regulatory enactments has had a recognised disability for a period of at least eight years.
- Participants of the mitigation activities for the Chernobyl nuclear clean-up.
- Politically repressed persons if they have been insured for at least 30 years.
In addition, persons who until 1996 were employed in particularly hazardous working conditions, according to the plants, jobs, and professions approved by the Council of Ministers of the USSR in 1956, are entitled to the old-age pension according to preferential terms from an earlier age than generally established.
In light of the fact that working in certain professions over a period of time is connected with the loss of one’s professional skills or social hazards, military persons, employees of the Ministry of Interior with special service ranks, prosecutors, officials of the Constitution Protection Bureau, ballet artists, soloist vocalists, circus artists, orchestra artists, choir artists, puppet theatre actors, theatre actors, judges, diplomats, Corruption Prevention and Combating Bureau officials, and national security institutions officials have a right to receive the service pension before reaching the general pension age. Although each of the sectors has different criteria for granting service pensions, with certain exceptions, there are several similarities – for retirement at the age of 50, there is a required length of service of 20 years, the pension is granted in an amount of 55 % of the average wage, which subject to the length of service can be greater. Upon reaching the determined age for a service pension, eligible individuals may still continue to work and are not obliged to apply for a service pension.
Persons who have chosen to make voluntary contributions to the private voluntary pension scheme and have accumulated additional capital can receive the pension upon reaching the age of 55.
At the beginning of the economic crisis, the number of early-retired persons increased significantly as early retirement was seen as an income opportunity in case of unemployment. The share of early retirement old-age pensions of all newly granted old-age pensions increased from 15.7 % in 2008 to 21.1 % in 2009.
However, according to the World Bank study “The Active Ageing Challenge for Longer Working Lives in Latvia”, early retirements are still below the EU average level – in 2012, the share of early retirements among persons who received an old‐age pension was 35.1 % in Latvia, whereas it was 39 % in the EU27. The reason for this is the fact that early retirement pensions are smaller than regular old‐age pensions and cannot be combined with work.
- Ministry of Welfare of the Republic of Latvia .- Available at: http://www.lm.gov.lv
- Portal “Par likumu un valsti” (in Latvian). Available at: - http://www.lvportals.lv/visi/skaidrojumi/197595 and http://www.lvportals.lv/nozare/tema/pensijas/3952
- Social Security Insurance Agency, Pensions. Available at: - http://www.vsaa.lv/en/services/seniors/old-age-pension
- State Employment Agency. Available at: - http://www.nva.gov.lv
- The Pension Reform Concept (in Latvian). Available at: - http://www.lm.gov.lv/upload/sociala_aizsardziba/apdrosinasanas_tiesibu_akti/pensiju_ref.pdf
- World Bank. “The Active Ageing Challenge for Longer Working Lives in Latvia” - World Bank, 2015. Available at: http://www.lm.gov.lv/upload/aktualitates2/wb_lv_active_aging_report_011015.pdf