<abstract xmlns="http://www.w3.org/1999/xhtml"><p>The author presents a comparative analysis of old-age pension systems in Estonia, Latvia and Lithuania using a method of retrospective simulation run on a self-developed model. The model baseline case is a person retiring in December 2014 after 40 years of service with nationwide average salary. Other cases include low and high-earners, funded schemes participants and simulations for modified notional capital valorisation formulae. Three study countries return very dissimilar results, which is caused by differences in their pension systems’ designs. Lack of non-contributory element (basic pension) in Latvia leads to a low degree of progressivity, with inexcusably low pensions to low-earners and excessively generous pensions to high-earners. Participation in funded pillar II schemes has not brought any significant gains to pension plan sharers. Notional capital valorisation rules adopted in different countries that use the NDC-system significantly influence pension amount.</p></abstract>

The author presents a comparative analysis of old-age pension systems in Estonia, Latvia and Lithuania using a method of retrospective simulation run on a self-developed model. The model baseline case is a person retiring in December 2014 after 40 years of service with nationwide average salary. Other cases include low and high-earners, funded schemes participants and simulations for modified notional capital valorisation formulae. Three study countries return very dissimilar results, which is caused by differences in their pension systems’ designs. Lack of non-contributory element (basic pension) in Latvia leads to a low degree of progressivity, with inexcusably low pensions to low-earners and excessively generous pensions to high-earners. Participation in funded pillar II schemes has not brought any significant gains to pension plan sharers. Notional capital valorisation rules adopted in different countries that use the NDC-system significantly influence pension amount.

Theoretical Old-Age Pension Benefits and Replacement Rates in the Baltic States: A Retrospective Simulation

Scientific Institute of Economics and Management, University of Latvia, Riga

Economics and Business

This work is licensed under the Creative Commons Attribution 4.0 Public License.

The author presents a comparative analysis of old-age pension systems in Estonia, Latvia and Lithuania using a method of retrospective simulation run on a...

Theoretical Old-Age Pension Benefits and Replacement Rates in the Baltic States: A Retrospective Simulation

Published Online: Jun 10, 2016

Page range: 13 - 19

DOI: https://doi.org/10.1515/eb-2016-0002

© 2016

This work is licensed under the Creative Commons Attribution 4.0 Public License.