Analysis of alternatives of old-age pension system: lithuania's case

Analysis of Alternatives of Old-Age Pension System: Lithuania's Case The problem of the research – demographic and social challenges are the cause of necessity to improve Old-Age Pension System and alternative analysis of complex old-age pension system is not carried out. Therefore, the goal of the paper is to accomplish the analysis of complex Lithuanian’s old-age pension system. Essential social and demographic reasons are the main cause to accomplish this analysis: the average pension is less than the poverty level in the country and in 2015-2040 the number of pensioners will grow from 19 to 32 per cent of the population as a whole. Also, the pension system is changed on average every five years. Although it is possible to find the analyses carried out in pension reforms which usually place limits on assessment of State Social Insurance Fund and the second pillar of the pension system and an alternative analysis of pension system; however, there is no complex analysis which would be carried out according operalisational criteria. The problem raised by study has been dealt with on the basis of the public policy analysis method. Six alternatives are brought out in this paper: changing the pensions system setting – indexation, conditions for participation in the second pillar pension adjustment, a new pension scheme based on National Defined Contribution account (NDC) and according to the pension reform which was carried out by the XVII Government. Assessment of Old-age pension system alternatives has been carried out on the basis of three criteria: adequacy, sustainability and actuarial justice. The adequacy criteria have been set like the ratio of the country's average old-age pension and wage. Sustainability criteria evaluates the status of the old-age pension budget and the balance of the budget in previous years. Actuarial justice counted like the ratio how much is social insurance contribution which returns over pension benefits. Analysis is carried out by developing alternative models and calculation of criteria on the basis of a programming language R, mathematics and forecasting the financial year 2018-2060. An essential assumption is the population prognosis, which is prepared by Eurostat. The analysis of Lithuania's old-age pension system shows that one of the best status quo alternatives is pension system based on NDC account. Compared to other alternatives this system determines the best actuarial justice. Also, the system is sustainable, because the ability to respond flexibly to economic and demographic changes. Adequacy of the NDC system is moderate in comparison to other systems. However, improvements can be made by changing the formula for calculating the amount of pension in this work. According to the findings of the analysis the establishment of NDC account could become the object of public policy agenda. The pension reform, which was suggested by the XVII Government, does not make a big influence on the criteria of adequacy and actuarial justice in comparison to status quo. So, basically, the suggested reform will not solve the issue of the small pensions or effective involvement in the second pillar of the pension system. On the other hand, there is a risk, in respect of sustainability. The differences between the alternative, whether or not containing in the second pillar, it can be seen that in those systems that contain the accumulation the adequacy and actuarial justice is greater than in the case when there is no any accumulation. However, the sustainability criteria are better in places where there are not the second pension pillar. The results of the work show that in case of voluntary accumulation, like in alternative of status quo, the sustainability of the old-age pension can be accessed. Also, the indexation changes have different effects on the sustainability and adequacy criteria. The choice of the indexation coefficient should be linked to the duration of the impac