Lithuanian Presidency Proposes Ending Mandatory Pension Annuities

The presidential office is initiating a discussion on a significant reform to Lithuania's second-pillar pension system, focusing on the mandatory annuity. The core idea is to move away from the current requirement for individuals to purchase an annuity with their accumulated savings upon retirement.

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The President's proposal is to discuss the elimination of the obligation to buy an annuity, but to establish a provision that a person could withdraw funds accumulated from pension funds in equal installments over a certain number of years, for example, over 15 years, and thus even physically receive two sources of income in old age – from Sodra and from private pension savings.

Instead, the proposal envisions a more flexible approach where savers could opt to receive their funds in equal installments over a period, potentially 15 years. This would allow retirees to have two distinct income streams: one from the state pension (Sodra) and another from their private pension savings. This flexibility is seen as a way to make the second pillar more appealing to participants.

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Currently, when a person saves privately in the second pension pillar throughout their life, at the end of the term they are obliged to buy an annuity, which is too complex for people to understand as a financial product, and perhaps it is not that attractive either.

Currently, the mandatory annuity is a point of contention. Some, like the Chairman of the Board of the Bank of Lithuania, Gediminas Šimkus, suggest it might be a reason why people are withdrawing from the second pillar. The complexity and perceived lack of attractiveness of the annuity product are cited as issues.

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The mandatory pension annuity may be one of the reasons encouraging people to withdraw from saving in the second pillar.

This discussion comes at a time when a significant number of people have already opted out of the second pillar. Last year's law allowing individuals to freely withdraw their contributions and investment returns from January 2026 to the end of 2027 has seen a substantial exodus, with nearly 40% of participants, about 550,000 people, leaving the system in the first quarter of this year. The proposed changes aim to address these concerns and potentially encourage more people to remain engaged with private pension savings.

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Proposals to abandon the obligation for residents saving in the second pillar to purchase pension annuities should have been considered when preparing for the pension reform, not after its entry into force.