Only 13 cents out of each euro paid to III Pillar pension come from employers

“Last year the total savings in the III Pillar pension fund increased by 14%, thus reaching 434.5 million euros. This increase was mainly promoted by the customers’ new payments, which reached another record – 77.7 million euros”, said Ilja Arefjevs, Member of the Board of Luminor Pensions Latvia. “The activity of private customers should be assessed very positively, as both new payments and the number of customers increased by 10% and 7% respectively, in comparison to 2016.

However, payments by employers traditionally continued to surprise negatively. In comparison with 2016, they increased only by 4% and formed just 13% of all new payments. This means that only 13 cents out of each euro paid into the III Pillar pension fund comes from the employers. In developed countries, the proportion of payments into private pension funds by employers varies from 30% to 50%. It should be mentioned that last year the total number of members in collective agreements in Latvia did not increase at all, which is not a positive sign.

Latvia, employers can get very generous tax benefits for making payments into the III Pillar pension fund. They were almost not influenced by the tax reform, as a result of which the reimbursement for private instalments was limited to 10% of the gross salary, but not exceeding EUR 4 000 per year (both limitations together with life insurance with savings for premiums). The employers’ payments are not subject to the limitation of EUR 4 000 per year, and they are not affected by the 10% limitation, which affects only private instalments.

to information provided by the State Revenue Service in 2016, there were fewer than 2 000 customers whose instalments exceeded EUR 4 000 per year. Some of these customers, for whom the possibilities of using the tax benefits have significantly decreased as of the beginning of this year, will continue to accrue savings in the III Pillar pension fund via the employers. It is expected that along with the increasing popularity of collective agreements, payments into private pension funds will be gradually included therein more frequently. Until then, everybody must take full responsibility for their own welfare, as in the old days, by carefully selecting a II Pillar pension fund manager and getting involved in a III Pillar pension.