Riga, April 17 (LETA) - The Welfare Ministry is planning to promote amendments to the Law on State Funded Pensions, which would allow citizens who are participants of the state funded pension scheme to stop participation in the second pillar of pensions five years before the retirement age and add the capital accumulated in it to the first pillar of pensions, the ministry informed LETA.

Thus, people will be able to choose what to do with their accumulated capital in the second pillar of pensions when they approach retirement in order to reduce the risk of losing it due to financial market fluctuations.

The income in old age consists of an old-age pension, which is made up of both the pension capital accumulated in the first pillar and the pension capital accumulated in the second pillar. At present, the second pillar of pensions are invested in financial markets and can increase or decrease in value.

The ministry pointed out that it is particularly important for people in their pre-retirement years to ensure that their accumulated pension capital does not decrease and that their income in retirement is as high as possible.

By adopting these amendments, people will be able to decide to transfer these savings to the first pillar of their pension, which ensures that the capital will not be reduced and can only increase. This will be a voluntary choice - it will be up to the individual to decide when to do this if they have no more than five years to retire, the ministry said.

The proposal will be submitted to the Saeima budget and finance (taxation) committee for further discussion.

A similar amendment on more flexible use of second-tier pension capital was already put forward to the budget and finance committee in 2022, but politicians were not yet ready to support the proposal.

Latvia has a three-tier pension system. The first pillar is paid to current pensioners from social contributions collected in the budget. The second pillar provides for a part of workers' social contributions to be invested in the financial sector. The third pillar consists of private pension funds to which people can contribute voluntarily.

As reported earlier, Anzelika Dobrovoļska, board chairwoman of Swedbank Ieguldijumu Parvaldes Sabiedriba investment management company told LETA that the Latvian government should introduce a sustainable solution that would give people the opportunity to postpone the payment of the second pension pillar capital or ensure a gradual withdrawal from the investment plan during a stock market downturn.

LETA was subsequently told that the Finance Ministry in principle supports the possibility of introducing a more flexible mechanism for the disbursement of the second pillar of pension savings in crisis situations, such as during a significant financial market downturn, including allowing for deferral or gradual disbursement.

At the same time, the ministry noted that the basic principle of the pension system in Latvia is the linking of the first and second pillars, i.e. savings from both pillars are combined to form a single pension. If only the second pillar is deferred and the first pillar is granted, this principle is broken.

Therefore, the involvement and position of the Welfare Ministry as the responsible authority in the sector, is needed to assess and implement such a proposal, the Finance Ministry explained earlier.