The Pension Annuity Fund Council warns – if the fund’s profitability decreases, we will lose the ability to index annuities

The proposed changes to the Lithuanian pension accumulation system will directly affect the Pension Annuity Fund. It is forecasted that unpredictable volumes of pension annuity acquisition would lead to changes in the fund’s investment policy, which would reduce the expected profitability of the fund. It is estimated that lower profitability would only be enough to secure the fund’s liabilities, and the possibility of indexing pension annuities assigned to residents would disappear.

“The size of a pension annuity is primarily determined by the amount accumulated by a resident in the pension fund. The proposed changes would allow residents to use part of the funds accumulated in the pension fund for other purposes, therefore a smaller amount would remain for increasing the pension by purchasing a pension annuity,” explained Mindaugas Vaičiulis, Chairman of the Pension Annuity Fund Council.

The proposals that have a significant impact on the Pension Annuity Fund (PAF):

1. Replacing the state subsidy for savers with a tax relief;
2. Permission to withdraw once up to 25 percent of the amount accumulated in the pension fund;
3. Possibility to suspend accumulation, constantly extending such suspension;
4. Refusal of semi-automatic inclusion of participants;
5. 12-month window to withdraw from pension accumulation.

The impact of the above proposals on the PAF would manifest itself in the following way:

1. The number of pension-accumulating residents who would be required to purchase a pension annuity would significantly decrease. The risk assessment of the proposed legislative amendments indicates a significant decrease in the number of pension annuity recipients. For example, from 2030, half as many residents would purchase pension annuities than is forecasted under today’s conditions. This would lead to significantly slower growth of the Pension Annuity Fund and relatively lower operational efficiency.
2. The possibilities of indexing pension annuities from investment profits exceeding the guaranteed 1 percent annual profitability would be significantly reduced. Due to the difficult to predict PAF revenue flow, the PAF investment policy should be changed to one with lower risks and returns in order to ensure uninterrupted payment of assigned pension annuities.
3. It would become more difficult to predict the mortality of annuity recipients. As the number of new annuity recipients decreases to a minimum, the possibilities of using the insurance principle would decrease. The risk that new annuity recipients will be assigned lower pension annuities would increase.
4. The need for state loans to cover PAF administration costs would increase and the repayment time of loans would be pushed far into the future.

The Pension Annuity Fund in Lithuania was established in 2020, after centralizing pension annuity payment activities in Lithuania. The Pension Annuity Fund is administered by Sodra, in consultation with the PAF Council, which consists of 5 independent members. The Fund’s priority is the interests of the population receiving pension annuities, therefore, with this public announcement, the Pension Annuity Fund Council informs and warns the public, decision-making politicians and the supervisory authority – the Bank of Lithuania – about the negative impact of the decisions under discussion on the Pension Annuity Fund and pension annuity recipients.

Pension Annuity Fund Council

2025-06-04