People show increased interest in the possibility of being in charge of their savings
Today, on 12 March at "Nordea māja" 62 K. Valdemāra iela in cooperation with the insurance company ERGO Nordea Pensions Latvia presented the general trends in the savings market for 2015 and the future forecasts, paying special attention to the trends of life pension policy.
“The Latvian pension system is often highly acknowledged by foreign experts, yet the majority of Latvian residents are generally sceptical about their welfare in old age. This contradiction has a quite simple explanation, namely, regardless of the existing state pension system, so far only one of the pension pillars has fully functioned. For this reason the general performance of the state pension system so far has been very modest, however, once the payments from the 2nd pension pillar started, its significance in the whole pension system is substantially increasing,” points out Iļja Arefjevs, Member of the Board of Nordea Pensions Latvia.
Over five years the amount of savings in the 2nd pension pillar will grow rapidly
Nordea forecasts that the average capital saved by one participant in the 2nd pension pillar will exceed EUR 5,000 in 2020 and EUR 34,000 in 2040 compared to the present EUR 1,732 reaching an increase by several times. Moreover, in the next five years, around 15 thousand participants on average will receive their saved capital from the 2nd pension pillar every year. Therefore life pension policies will increasingly become a more popular choice among the customers.
Even though it is generally accepted that the 2nd pension pillar is an efficient instrument of making pension savings, the private 3rd pillar pension savings are also necessary. First of all, they allow increasing the amount of pension, and second, they make it possible to start using the pension capital before reaching the retirement age—as early as from the age of 55. Besides, the 3rd pillar pension savings are also supported by tax relief, namely, contributions to the private pension funds are subject to the personal income tax refund.
Life pension policy—a possibility to appoint an heir for the 2nd pillar pension savings
A life pension policy is an alternative option for receiving the accumulated 2nd pillar pension savings. A life pension contract may be concluded by any participant of the state pension system who has reached the retirement age and whose accumulated capital is at least EUR 4500 – 5000. It should be noted that at present the number of people who meet the criteria for becoming a Life pension policyholder is quite small in Latvia. In 2014, it covered around 5% of all pensioners; however, the number may even double in the next decade.
“Life pension policies in Latvia in 2014 were chosen by around 90% of those pensioners who met the criteria for signing a Life pension contract. People mainly use this alternative—to be in charge of their pension savings—because it ensures a possibility to choose the way of receiving the accumulated 2nd pillar pension, to design the payment periods and amounts of the life pension, as well as to determine the frequency of pension payments. ERGO customers emphasize the possibility to appoint an heir—a family member or any other freely selected person who will be able to receive the unpaid pension in the event of policyholder's death instead of paying it to the state budget, as the biggest benefit of the Life pension policy,” says Andris Dzikavičs, Head of ERGO Life Insurance in Latvia.