Number of third-pillar pension savers grows in Latvia, but contribution ratio to income declines; employers' role becomes more important
Although the number of participants in Latvia's third-pillar pension scheme has increased significantly in recent years, the share of contributions relative to income has decreased, raising concerns about insufficient savings. Employer involvement is highly valued but still rare.
In Latvia, awareness is growing that relying solely on the state pension in the future is insufficient, and additional savings are becoming a necessity. This is reflected in the development of the third pension pillar – over the past eight years, the number of savers has increased from 286,000 to more than 460,000, according to data from Swedbank.
However, participant count is only one part of the picture. Long-term pension capital is also determined by the amount of contributions relative to income. Here, a reverse trend is observed – the average monthly contribution to the third pillar has risen from €44 to €53, but its share of net income has decreased from 4.8% to 3.5%. In 2018, 28% of participants contributed at least 5% of their salary, compared to only 18% today. Only 5% of savers contribute at least 10% of their salary, despite this being considered the recommended level for adequate income replacement.
Wage growth alone does not lead to larger savings – people tend to increase daily expenses rather than savings. For example, a person with a €1,000 salary who allocates 3% to the third pillar for 30 years will end up with about three times less savings than if they contributed 10%.
Insufficient savings affect not only future pensions but also current financial security. A survey by Swedbank's Financial Institute found that 92% of residents experience financial worries, half say it negatively impacts their emotional well-being, and over a third report effects on quality of life and work performance.
In this context, the role of employers becomes crucial. The survey shows that employer contributions to the third pension pillar are among the most valued employee benefits – 66% of respondents consider them important or very important. However, only 5% of respondents report receiving such contributions from their employer. Employer contributions not only increase the savings amount but also help maintain regular saving discipline, thereby strengthening employees' financial resilience, loyalty, and the company's competitiveness.
