THE EVOLUTION AND MAIN CHALLENGES OF PENSION SYSTEMS IN THE BALTIC COUNTRIES
Abstract
The article examines the evolution of the pension systems of Estonia, Latvia, and Lithuania from independence to the present. It is noted that the Baltic countries have undergone several stages of pension system reform. Special attention is given to the reforms carried out during the 1990s and early 2000s, when there was a transition to multi-tier pension systems and measures were taken to introduce a mandatory funded pension system, forming the second tier. This period is characterized by the governments’ ability to respond promptly to crisis phenomena in the pension sector, as well as the establishment of a system for protecting the pension assets of funded programs. The reforms following the 2008–2009 financial crisis and the evolution of the pension systems in the Baltic countries up to the 2020s are also assessed. Currently, three-tier pension models are being developed in these countries, similar to those in most EU states. The analysis covers the transformation of pension provision models, the role of PAYG systems, funded components, and private pension funds. Statistical data are provided on minimum and average pensions, the level of salary replacement by pensions, retirement age, participation in private pension funds, and the degree of employment among pensioners. The main challenges are highlighted: demographic changes, financial sustainability, inequality, employment, and institutional factors. It is emphasized that the pension assets of participants in funded programs, due to exposure to investment risks, require greater protection from the state. Additionally, the labor market is significantly affected by the shadow economy and, consequently, by the evasion of social contributions. The article concludes by discussing possible reform directions that could enhance the sustainability and fairness of the pension systems. Attention is focused on the need to strengthen funded components and implement institutional modernization within the mandatory funded pension framework.
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