After the restoration of independence, Lithuania inherited a Soviet pension system that was characterised by comparatively early retirement provisions (the retirement age was 55 for women and 60 for men), with privileges for certain occupational groups, without any link between social security benefits and contributions, and without a separate state social insurance budget. In May 1991, with the introduction of the Law on the State Social Insurance, a separate social insurance system was established and the types of social insurance, their financing, and management were identified.
The first wave of pension reform in Lithuania took place in 1994–95, following a major economic crisis in the early 1990s. In order to increase the system's sustainability, the reform, which was stipulated in the Law On State Social Insurance Pensions (03.08.1994, No. 59-1153), focused on amendments of the first pillar. Eventually, the types of social insurance pensions, their financing, and management were identified, and the retirement age was gradually increased to 60 years for women and 62.5 years for men (reached in 2006). In addition, the number of contributory years required for pension benefits was gradually raised (for women to 25 years, for men to 30), early retirement provisions were abolished, and a strong link between contributions and benefits was established.
The second wave of pension reform in Lithuania was implemented in the beginning of the 20th century. The reform was stipulated in the Law On Reform of the Pension System (24.12.2002, No. 123-5511), the Law On Additional Voluntary Accumulation of Pension (30.07.2003, No. 75-3473), and the Law On the Accumulation of Pensions (30.07.2003, No. 75-3472). The reform was focused on the enrichment of the pension system by introducing the second and the third pillars, with an aim to supplement the pay-as-you-go system (based on the principle of redistribution) with funded schemes and a supplementary pension provision (based on the accumulation principle). Public response to the second pillar pension funds was extremely positive. In a short time more than 50 %_of the workforce signed up for the second pillar schemes. On the contrary, the third pillar pensions still are underdeveloped in Lithuania, due to the economic crisis in 2008.
In 2003, the Law on Early Retirement Pension (05.12.2003, No. 114-5116) was adopted; however, early retirement schemes for some select groups (compensations for persons working under special conditions) were in force since 1994. In 2006, the Lithuanian parliament passed a law that enables the creation of occupational pension schemes and group life insurance policies. These could become the basis of a fourth pillar in the future, but a scheme has yet to be created.
In 2011, the Resolution of Government of Lithuanian Republic on changes to Act No. 1156 from 18 November 1994, On Confirmation of Rules on Assignment and Payment of State Social Insurance Pensions (16.07.2011, No. 89-4262), was accepted, anticipating the gradual increase of the retirement age to 65 for both men and women in 2026.
Pension reforms in Lithuania have resulted in a much more sustainable system with a widely accepted funded element.
Activation policies for people ages 50+
In 2006, activation policies affecting the population 50+ were introduced, in the Law on Employment Support (30.06.2006, No. 73-2762). It aims at: 1) increasing employment opportunities for working-age jobseekers in order to reduce unemployment and mitigate its negative consequences; 2) matching labour supply and demand in order to maintain the balance of the labour market. Activation policy is an integral part of the national employment policy. The main active labour market policy measures carried out in Lithuania are the following:
- Vocational training: The unemployed and employees notified of a pending layoff may acquire qualification and/or the development of professional skills.
- Non-formal education: The unemployed and employees notified of a pending layoff may improve their qualification, upgrade professional knowledge and/or practical skills, and be introduced to occupations.
- Placement with subsidies: Support for individual groups of people additionally supported in the labour market in finding jobs and anchoring at work for an unlimited duration.
- Support to acquire labour skills: Support to graduates of universities, further education and vocational training schools, and the unemployed completing vocational training and in-service professional rehabilitation to acquire lacking labour skills.
- Public works: Temporary works organised collaboratively by territorial labour exchanges, municipalities, and employers for the unemployed and other persons registered with the territorial labour exchange under the established procedure. These works have an added social value as they help those who lost their jobs to earn a living.
- Support for implementation of Local Employment Initiative projects (support for job creation): Encouraging the former unemployed and employers to create jobs and hire the disabled and other groups of unemployed people registered with territorial labour exchanges for an unlimited duration and/or encouraging the unemployed and disabled to establish self-employment.
- Job rotation: Placement of jobseekers registered with territorial labour exchanges to serve as temporarily substitutes for employees during planned vacation periods or in cases provided for in collective agreements.
- Promotion of self-employment: To provide the opportunity for unemployed people to organise small and medium-sized businesses, to create new jobs for people with disabilities.
- Territorial mobility of unemployed: Encouraging the unemployed to become employed in workplaces distant from their place of residence when the employment office cannot offer a proper job to the unemployed and in order to provide employers with the necessary staff.
Early Retirement Policies
Assignment and payment of early retirement pension is stipulated by the Law on Early Payment of the State Insurance Old-age Pensions (05.12.2003, No. 114-5116). Persons eligible for an early retirement scheme are those who on the day of their application for an early retirement pension meet all of the following requirements: are not more than five years below the old-age retirement age, have a social pension insurance record of at least 30 years (with some exceptions), do not receive other pensions, and are without any job.
In the period of 2012–26, the early retirement age is increasing in line with the change in the legal retirement age from 60/62.5 years (2012) to 65/65 years by 2026. The early retirement pension benefit is calculated in the same way as the state social insurance old-age pension benefit, in accordance with the Law on State Social Insurance Pension (03.08.1994, No. 59-1153.), and is reduced by 0.4 % for each full month remaining until the person reaches retirement age.
Some special regimes for early exit pathways are regulated by Article No. 67, ‘Compensations for Special Working Conditions’, of the Law on State Social Insurance Pensions. The right to receive a monthly compensation payment for special working conditions is granted to those persons who until 01.01.1995 were not granted the state social insurance old age pension or retirement pension, or a Republic of Lithuania pension, or after 01.01.1995 were not granted the permanent compensation benefit specified by other legal acts for special working conditions, and who worked for the prescribed time under special working conditions.
The compensation benefit granting this and the payment of the compensation are governed by The Temporary Law on Conversion and Payment of Social Benefits (24.12.2009, No. 152-6820) and the Act of the Government of Lithuanian Republic On Description of Procedure for the Calculation and Payment of Compensation for Special Working Conditions (20.02.1995, No. 267, Official Gazette, 1995 No. 17-398).
The intention of this measure is to compensate individuals for impaired health or shorter life expectancy.
- Bartkus, A. “Influence of macroeconomic factors on Lithuanian retirement pension system”. Applied economics: Systematic Research 2(2) (2008): 135-153. ISSN 1822-7966.
- Government of the Republic of Lithuania. Resolution On changes in the Act No. 1156 from 18 November 1994 On Confirmation of Rules on Assignment and Payment of State Social Insurance Pensions. Resolution of Government of Republic of Lithuania, 13-07-2011, No. 836, Official Gazette, 16.07.2011, No. 89-4262. (unofficial translation)
- Government of the Republic of Lithuania, Resolution On Description of Procedure for the calculation and payment of Compensation for Special Working Conditions. Resolution of Government of Republic of Lithuania, 20.02.1995, No. 267, Official Gazette, 1995 No.17-398. (unofficial translation)
- Law of the Republic of Lithuania On Additional Voluntary Accumulation of Pension. No. VIII-1212, Official Gazette, 30.07.2003, No. 75-3473. (unofficial translation)
- Law of the Republic of Lithuania On Early Payment of the State Insurance Old age pensions, No. IX-1828, Official Gazette, 05.12.2003, No. 114-5116.
- Law of the Republic of Lithuania On Reform of the Pension System, No. IX-1215, Official Gazette, 24.12.2002, No.123-5511
- Law of the Republic of Lithuania On State Social Insurance Pensions, No. I-549, Official Gazette, 03.08.1994, No. 59-1153.
- Law of the Republic of Lithuania On Support for Employment. No. X-694, Official Gazette, 30.06.2006, No. 73-2762.
- Law of the Republic of Lithuania On the Accumulation of Occupational Pensions. No. X-745, Official Gazette, 27.07.2006, No. 82-3248.
- Law of the Republic of Lithuania On the Accumulation of Pensions. No. IX-1691, Official Gazette, 30.07.2003, No. 75-3472.
- Law of the Republic of Lithuania On the State Social Insurance. No. I-1336, Official Gazette, 31.05.1991, No. 107-0.
- Lazutka R. (2007). Development of pension schemes in Lithuania. Philosophy. Sociology. No. 2, 2007, 64-80
- Moskvina, J., & Okunevičiūtė Neverauskienė, L. Active Labour Market Policy: Theory and Practice. Technika, Vilnius (2012).
- National Audit Office of the Republic of Lithuania. 2009. National social insurance system. Public Audit Report, Vilnius. 2009.
- The Temporary Law of the Republic of Lithuania On Conversion and Payment of Social Benefits. Number XI-537, Official Gazette, 24.12.2009, No. 152-6820 (unofficial translation).