Pension Reform Progress and Problems

  • Eglė Leščinskienė Kaunas University of Technology
  • Algimantas Sakalas Kaunas University of Technology
Keywords: pension reform, unemployment, demographical situation, obligatory and accumulating social insurance, risk.


A wish of every person is social guarantees ensured applying various levels of citizens and state participation. Two diametrically different variants exist: the state and the private social insurance the combination of which creates several systems used in practice. The choice of a particular system is determined by the approach to personal and state responsibility priorities as well as economical criteria. From the very beginning of the independence Lithuanian State met with the solution of this problem. Sate pension funds (due to the economic decrease and high unemployment rate) were unable to perform their former obligations and had to be urgently reformed. The reorganization of the pension system has been running since the regain of Independence. The state obligation fulfillment to the pensioners was guaranteed by combining Sodra, state budget and financial possibilities of the credit system. All type pensions were indexed paying particular attention to inflation rate. The analysis of the applied pension formation and payment systems of the world (Barr N., 1998; Behrendt Ch., …; Dubinas, 1992; Green, 2002; Makinen T., 1999; Palacios R., …), particularly European countries (Great Britain, Germany) and especially post communist countries (Check republic, Poland, Latvia, Russia, Kazakhstan, Azerbaijan) was fulfilled. The principles of the pension reform fulfillment were formulated that were highly influenced by the old habit to shoulder all the responsibility about one’s own destiny to the state and do not take any responsibility on oneself. These principles were also affected by complicated financial situation that did not allow the guarantee of a reasonable pension rate and a higher level of pensioner living standards. Nobody doubts that people who created the well-being of the country should be honoured for that, however now the financial possibilities of the country are rather limited. This article shows the progress of the pension reform that started in 1995 paying the greatest attention to the transition from the obligatory insurance to the individually accumulated insurance. The necessity to match the pension system to the abrupt changes of economy, labour market, political life and social life due to the integration into the European Union has been stressed. This can be achieved by improving the laws and administration procedures related with the pension system at the same time removing shortcomings that occur due to the imperfection of the new system and the lack of experience. With the requirements to fulfill the pension reform more quickly: “to rationally combine the principles of current pension financing and accumulation” (A.Paulauskas), “involving non-governmental organizations into the delivering of the social services” (E.Gentvilas), but strived to give the real economical background to these proposals, i.e. to match the wishes and possibilities.