Aims and results of partial privatization of Lithuanian social insurance ensions

The main official objective of the pension reform was to change the pension system in such a way that persons of pension age could get higher income than previously, meanwhile to ensure that the redistribution would not be increased but reduced, and to ensure the long-term financial sustainability of the system which will cover all the inhabitants. Additionally, it was expected that introduction of the private pension scheme due the pension reform will increase savings and investment and thus will promote the growth of the national economy. The key element of the reform was the transfer of 5.5 percentage points of social insurance contributions into private pension funds. However, unlike some other Eastern and Central European countries, Lithuania made its private pension system optional for employees. Persons of any age, insured by the social insurance, got the opportunity to accumulate part of their social insurance contributions in a personal account of private pension funds. During the first four years of the pension reform, by the end of 2007, there were signed more than 800 thousand pension accumulation contracts between employees and managers of private pension funds. Thus, already at the beginning of the reform, almost 70 per cent of the insured for the full social insurance pension decided to participate in private pension funds. There are six assets managers and three private insurance companies in the Lithuanian pension market. They have accumulated the pension capital close to 1.7 billion Litas. Annual money transfer from the Social Insurance Fund to private pension funds (transitional costs of the reform) has reached 1 per cent of the GDP in 2008..