2-nd Tier – Mandatory State Funded Pension Scheme

The 2nd tier of the pension scheme was launched on 1 July, 2001. As of that date part of everyone’s social contributions are invested into the financial market and accumulated on the personal account of the 2nd tier participant. Everyone who is socially insured is entitled to be the participant of the 2nd tier, if on the 1 July of 2001 the person was not older than 50.

Participation in the 2nd tier is compulsory for those who had not reached the age of 30 on the 1 July of 2001 (were born after 1 July 1971). Gradually all employees will be involved in the 2nd tier. Persons who were between the ages of 30 and 49 (born from 2 July 1951 and 1 July 1971) at the moment, when the scheme was launched, could and still can join the system voluntarily. If you are within this age group and have decided to participate in the 2nd tier, you have to submit your application to the State Social Insurance Agency.

Participants of the 2nd tier do not have to pay additional social contributions. The total contribution for the pension capital (20% of income) remains unchanged and is redistributed between the 1st and the 2nd tiers of the pension scheme.

Total redistribution of the pension capital contributions between the 1st and the 2nd tiers of the pension scheme:

Years 1st tier 2nd tier

2001 - 2006

18%

2%

2007

16%

4%

2008

12%

8%

2009-2012

18%

2%

2013-2014

16%

4%

2015 15% 5%
2016
14% 6%


The amount of money accumulated on the 2nd tier account is influenced by:

  • the amount of the salary;
  • the amount of payments made into the 2nd tier;
  • participation period in the 2nd pension tier;
  • the profit, which depends on the funded pension fund manager and investment plan chosen by you.

Additional savings in the 2nd tier of the pension scheme are made by investing part of the resources registered on the person’s personal account into shares, bonds and other securities as well as in the bank deposits. Investing is performed by the third party – the licensed fund manager. Therefore the pension capital grows faster than inflation and average salary in the country. Upon retiring the participant of the 2nd tier will be able to make a choice – either to add the accumulated pension capital to the 1st tier and receive both pensions together, or to entrust the capital accumulated in the 2nd tier to the insurance company of his choice and this company in accordance with the terms of the policy will regularly make the payments of the accumulated pension.

Who can be a fund manager?
Until 1 January 2003 there was only one public fund manager for the funds of the 2nd tier – the State Treasury, that invested the funds exclusively into the Latvian state bonds and into the deposits of the largest and safest Latvian banks.

As of 1 January 2003 the private fund managers were involved and currently the participants of the 2nd tier are in the position to choose their fund manager – public or private – themselves. The private fund managers offer to invest the pension capital also into corporate bonds, shares and foreign securities.

Participants of the system are entitled to change their fund manager once a year and investment plans within the frame of one fund manager – twice a year.

Performance of the private fund managers is supervised by the Finance and Capital Market Commission.


Publicēšanas datums: [01.10.2014.]