The Ministry of Welfare has until May to conceptually agree with the seniors organization and other partners on one of the options offered by the ministry on how to introduce the payment of the basic pension in the future, the deputies urged at today’s meeting of the Saeima’s Committee on Social and Labour Affairs.
Although the concept of providing a basic pension has been offered twice since 2022, so far no consideration of such a solution at the government level has taken place for various reasons, said State Secretary to the Ministry of Welfare Ingus Alliks. Currently, the ministry is given the task of “conceptually deciding” by the 30th of October, 2026 on the best way of implementing the gradual introduction of basic pensions.
The representative of the ministry mentioned five potential scenarios for the introduction of basic pensions. He emphasized that in the case of the introduction of the basic pension, no amendments to the common pension system are planned. Also, in the event that a basic pension is introduced, it is essential to preserve the financial sustainability of the pension system or the ability to finance the obligations assumed in the long term, to ensure social sustainability or adequacy of the pension amounts, as well as the motivation for residents to fully participate in the social insurance system, the official explained.
The first variant of the introduction of basic pensions would provide for the improvement of the granting of bonuses for each year of insurance, linking the amount of the bonus to the proportion from the most up-to-date median income. This could take the form of two options. For example, from 2029, one would be paid for each year of insurance, while in the second variant, from 2029, one would be paid for the length of service until the 31st of December, 1995, and from 2032 – for the length of service from the 1st of January, 1996.
As Alliks noted, predicting the exact additional costs for all options is difficult, and the ministry’s estimates are made as a percentage of gross domestic product (GDP). In the first option, in 2029, the increase in expenditure with an increase in the amount of the average premium of EUR 28.10 could be EUR 146.1 million per year or 0.3% of GDP, while in the second option, in 2029, the cost with an increase in the amount of the average premium of EUR 20.03 would be EUR 104.1 million or 0.2% of GDP.
Gradually, in both variants, the increase in the expenditure would increase to 3.5% of GDP by 2050, or EUR 3.5 billion per year.
In both options, the bonuses would be further reviewed in January of each year, changing the proportion from the most up-to-date median income to the amount of the median income.
In another variant proposed by the Ministry, from 2029, the basic pension for all would be set at 6% of the median income, gradually increasing the amount until it reaches 22% in 2038. The amount is expected to be raised every three years by six percentage points. According to the ministry, this would be a more expensive option than the first, because initially its implementation would cost almost twice as much as the implementation of the previous option.
However, in another variant, with 2029, the basic pension for all would be set at 22% of the median income, creating a constant, equal monthly amount for all beneficiaries. Attendees of the meeting commented this meeting with concern.
For example, Pēteris Leiškalns, an expert from the Employers’ Confederation of Latvia, pointed out that such a solution could contribute to the fact that people do not want to pay social insurance contributions, because “the state will give something anyway”. Egīls Baldzēns, head of the Free Trade Unions of Latvia, also agreed with this assessment, stating that such a solution would be “absolutely demotivating” and would contribute to the fact that young people will negligently pay social insurance contributions.
Most likely, financing for one of the solutions for the implementation of the basic pension in the Ministry of Welfare could be obtained either by redistributing the existing budget funds or by finding financing as a result of tax policy shifts.
There is also the option of not opting to introduce basic pensions, but this could be risky given that the number of social security contributors could decrease in the future due to low birth rates. There is also a positive forecast that the population will continue to live longer.
In general, Ministry of Welfare is sceptical about the implementation of solutions without a “drawback from the basic budget”.
To date, ministry has not received final approval for any of the implementation scenarios, but theoretical approval for the proposed models has been given by the Bank of Latvia. Negotiations with other social partners should also continue, Alliks noted.
It is planned that this year the government will consider a conceptual report on one of these options, so this year it is hoped only to decide on whether such a solution should be introduced immediately or gradually.
Representatives of senior organizations during the meeting urged to increase the amount of allowances for pensioners aged 80 and over who retired before 1996 and receive a minimum amount of pension more quickly.
Aija Barča, President of the Latvian Pensioners’ Federation, expressed concern that by raising the minimum amount of pensions, others who have paid higher social security contributions due to longer work will not feel deprived.
In response to this reply, the Ministry of Welfare representative noted that the issue of setting the minimum pension, social security contributions and alignment of the basic pension payment must necessarily be taken into account when potentially introducing basic pensions.
Also, the Ministry of Welfare continues to explain that the minimum length of service required to receive a pension from this year is 20 years. In the past, the length of service has led to wide-ranging discussions, for example, it is believed that with high contributions, you can earn faster, but it should be remembered that the state can interfere with the pension system, because it is not “private insurance”, Alliks said.
As previously reported, the Minister of Welfare Uldis Augulis said at the Seniors Affairs Council meeting this year that a decision on the “basic pension” should be made this year.
The plant has explained that the “basic pension” solution will be very financially intensive in any case, but in his opinion, it needs to be moved towards. The Minister of Welfare stated that the final version should be based on the assessment of the years of service not only from 1996, but in relation to the entire working life.