Lithuanian PM-Designate: Ending Pension Subsidy Would Be 'Final Nail' in System

Mindaugas Sinkevičius, Lithuania's Prime Minister-designate, has voiced strong opposition to potentially eliminating the state's incentive for contributions to the second pension pillar, calling it the "final nail" for the system.

Sinkevičius emphasized the state's role in encouraging citizens to build their retirement funds. "I believe the state must be interested in people saving for their old age in second, third pillar funds or by acquiring real estate and having so-called passive income," he stated. He indicated he is not yet firmly decided on immediate changes, acknowledging that natural processes are causing some individuals to withdraw from the system, which in turn reduces the required state budget allocation for incentives.

The debate surfaces amid ongoing reforms and public sentiment regarding Lithuania's pension system. The second pillar currently involves a mandatory 3% contribution from an individual's salary, with the state adding a further 1.5% based on the previous year's national average wage. For someone earning the average salary, this state contribution amounts to approximately 402 euros annually.

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I believe the state must be interested in people saving for their old age in second, third pillar funds or by acquiring real estate and having so-called passive income.

However, a significant portion of the second pillar's assets has already been withdrawn following a reform that allows individuals to reclaim their contributions between January 2026 and the end of 2027. Since the reform's implementation, the second pillar funds have lost 4.4 billion euros in assets, reducing their total value to 6.2 billion euros. Of this amount, 2.9 billion euros have been returned to citizens, and 1.3 billion euros to "Sodra" (Lithuania's social insurance fund).

Algirdas Sysas, chairman of the Budget and Finance Committee and a Social Democrat, has proposed discontinuing the 1.5% state incentive. He suggests redirecting these funds to other areas, such as increasing pensions for current retirees.

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I think that would be the final nail in the coffin for the second pillar pension system.