According to the World Bank’s latest World Development Report, about 200 million people in the world cannot find a job, a third of them being people under 25. At the same time, in many countries the age of retirement is being postponed. There is a contradiction.
One of the arguments of supporters of raising the retirement age is the increase in the life expectancy of the population associated with improvement of medical care, promotion of a healthy lifestyle in all its manifestations. Indeed, many people in developed countries keep longer their ability to work and are ready to continue working.
Another argument lies in a completely different dimension and is associated with a lack of social insurance resources to pay decent pensions due to a reduction in the birth rate and, correspondingly, a decrease in the proportion of the able-bodied population.
The age of retirement is increasing in most developed countries. In Europe and the United States, it has become usual to retire at 65 years of age. In developing economies, Russia, China, the retirement age is lower: 55-60 years. The Baltic countries in this aspect follow the Old Europe. Still recently in Latvia men and women retired on pension at 62, gradually the terms are prolonged to 65 years.
Meanwhile, by the end of 2016, 2.76 billion EUR have been accumulated in Latvia’s pension funds, of which 2.3 billion EUR are social insurance contributions made by future pensioners, and 447 million are profits earned by the fund managers.
In the second-tier pension system, by the end of 2016 there were seven management companies that offered 20 pension schemes for pension accumulation management.
Average annual profitability of all second-tier schemes in 2016 was 2.02%. Private pension funds (3rd pension tier) had a slightly higher profitability in last year: 3.38%.
At the same time, most private enterprises and their employees have little interest in the 3rd pension tier schemes. There are several reasons for this. The problem of the Latvian labour market is that the country is only developing a middle class that is not yet practically involved in accumulating pension systems.
Another explanation is the shadow economy accounting for 24% of GDP in Latvia. In this case, we are talking about illegal remuneration for work - the so-called salary in envelopes, which according to various estimates amounts to 25-60% of the wages of workers in private enterprises.
But even more important issue is the matter of confidence. Only 2.9% of all employees expect to receive a pension in the future while noting that they know little about their future pensions and do nothing to change the situation, hoping for a miracle.
But miracles do not happen. After a couple of decades, a person with average incomes of the 1 st and 2 nd pension level will provide about 40% of his previous earnings.