First and second pillar pensions: costs and benefits for contributors in the Baltics
First and second pillar pensions: costs and benefits for contributors in the Baltics

Summary/Abstract: Early in the twenty-first century, the Baltic states reformed their retirement pension systems by introducing funded pensions (second and third pillars) alongside the existing pay-as-you-go (PAYG) system. These reforms aimed to diversify and potentially increase retirees‘ income and reduce the fiscal strain on public finances. This study evaluates the impact of the second pension pillar on individual incomes at retirement in the Baltic states, comparing benefits (additional retirement income) and costs (reductions in PAYG pensions and deferred consumption). The analysis considers low, medium and high-risk investment scenarios, finding positive outcomes for most participants in Lithuania and Estonia, but unprofitable ones in Latvia.

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