What happens to second-pillar pension savings if a person dies before retirement age
More than half of Latvia's second-pillar pension participants have not decided what happens to their savings if they die before reaching retirement age, meaning the funds default to the state pension budget. The law offers other options too, and experts recommend reviewing the choice as life circumstances change.
Latvia's State Funded Pensions Law allows every second-pillar pension participant to decide in advance what happens to their accumulated capital if they die before applying for an old-age pension. If no choice is made, the capital is automatically transferred to the state pension special budget.
Participants can choose from three options: directing the savings to the state budget, adding them to another person's pension capital, or passing them on through general inheritance rules under the Civil Law. Each option carries specific conditions. Money transferred to the state budget can somewhat increase survivor's pension payments for dependents. Adding the capital to another person's account does not produce an immediate payout — it simply boosts that person's future pension, and the recipient must already be a second-pillar participant themselves.
Inheritance rules
When savings are passed on through inheritance, they can go to statutory heirs or to someone named in a will. An heir may choose to receive the money as a bank transfer, in which case personal income tax and any outstanding debts are deducted, or add it to their own pension capital. Where there are multiple heirs, the savings are divided according to the notarial inheritance certificate. In every inheritance case, 20% of capital accumulated before the end of 2019 still goes to the state budget.
Experts advise adjusting the choice to one's life situation — for instance, people without dependents may prefer inheritance, while families with young children might benefit more from directing funds to the state budget, since it can raise a future survivor's pension. Those approaching retirement age might consider adding their savings to a spouse's pension capital instead.
Applications to register or change this choice can be submitted to the State Social Insurance Agency (VSAA) in person, electronically, or via the Latvija.lv portal, and the decision can be updated at any time. Bank representatives note several common misconceptions, including the belief that savings automatically go to the family or can only be left to a relative. According to VSAA, as of July this year only 43.9% of the 1.31 million scheme participants had made a choice, with most opting for inheritance under the Civil Law.
