Contributions to the 3rd pillar pension funds have almost doubled in the last seven years, while private deposits increased by 3.5 times. At the same time, only about 1000 employers are making contributions for their employees, and the growth of contributions is jerking and very unstable.

“It is important that employers’ contributions to private pension funds are mutually beneficial for the employers and for their employees. The employers making contributions to private pension funds get considerable tax exemptions, moreover, depositing to private pension funds via the employers is financially beneficial for employees, too. The 3rd pillar pension system is a possibility to create additional savings for pension, however, the amount of contributions to 3rd pillar pension funds is less than 20% of all private pension fund deposits”, underlines Kerli Gabrilovica, Head of Luminor Latvia.

In addition to the 1st and 2nd pension pillars, it is possible to make voluntary contributions, depositing a part of your income to some of the pension funds personally or via your employer. After the crisis, along with the improvement of economic situation and the increase of wages, the contributions to 3rd pillar pension funds grew in a two-year shift. With the growth of wages by 1 EUR, the increase of total private contributions to 3rd pillar pension funds is 177 thousand EUR per year, and the number of 3rd pillar contributors increases by 362 people.

Depositing to private pension funds with the mediation of employers is the most financially rewarding way of making contributions. The amount of money deposited to a pension fund is invested in various securities and ensures a respective yield, which depends on the chosen investment strategy, situation on the financial markets and the activities of the funds administrator.

Not only the contributions bring financial benefits, they also positively affect the employer’s image. “One of the important points is that the employer’s contributions to a private pension fund is a possibility to create the image of a socially responsible employer, who cares about its employees not only today, but also in a longer run. Tax refunds is another point which is also important for us as a budget institution, that is why contributions to 3rd pillar pension funds are especially beneficial from the organisational perspective as compared to other benefits offered to employees,” as commented by Valentīna Kuzņecova, the representative of Nordic Council of
Ministers' Office in Latvia. Nordic Council of Ministers’ Office is making savings for their employees in the 3rd pension pillar since 2016, having chosen Luminor (ex-Nordea, which features the most prominent experience in asset management in Nordic Countries especially).

Enterprises can also administer their contributions to the employees’ 3rd pension pillars independently, for example, AS “Pirmais Slēgtais Pensiju Fonds” is the only registered Latvian private pension fund, where savings can be made by a closed pool of participants – by the members of shareholders’ enterprises only. The shareholders of the fund are Tet and Latvenergo group enterprises, as well as the company Augstsprieguma tīkls.

Ingrīda Rone, HR director at Tet: “We offer a choice of benefit program for Tet employees, where every employee can choose the amount of his/her contributions to the 3rd pension pillar. We see that the young generation employees are focusing on the near and visible future, and, despite the fact that they appreciate the personal income tax refund, their priority is still on bonuses that can be used here and now, such as paid catering, transport expenses, a possibility to purchase equipment and company’s services, and other benefits. At the same time, people with broader life experience prioritize the possibilities offered by the pension fund – the amount of contributions made to the pension fund is growing consistently among the employees who are 45-50 years old.

People should note that they can get a refund of paid personal income tax from the amount of contributions to 3rd pillar pension funds not exceeding 10% of their gross salary during a calendar year (for the contributions limited to 4000 EUR per year).