The planned tax reform, which has been the subject of heated discussions in recent days, may lead to an uncontrolled increase in the retirement age. This is the opinion of Ilya Arefjevs, Chairman of the Board of IPAS Vairo. "Currently, things are not so good with the social budget of Latvia. Therefore, in the context of the tax reform, the proposal of the Ministry of Finance to reduce contributions to the 2nd pension pillar by 33% (or by 2% from 6%) is seen as a threat to the pension system. Although contributions to the first pillar will be increased by 1%, this will not ensure stable financial coverage in the future (since the first pillar is financed by current social insurance contributions)," the expert points out. According to him, the potential reduction in second-pillar pension contributions, which provides for the redistribution of 1% in favor of the first pillar, signals the risks of an uncontrolled increase in the retirement age in the future. Current contributions to the first-pillar pension fund do not provide sufficient financial resources to pay pensions to current pensioners at 65 years of age. "Reducing contributions to the second pension pillar may result in the retirement age having to be raised much faster than the average life expectancy increases. This is a clear threat to the Latvian pension system," warns Arefjevs. The current contribution rate of 6% for second-pillar pensions is already much lower than the originally planned 10%. "Therefore, it is necessary to assess the impact of this proposal on the future sustainability of the pension system. Finally, it should be remembered that for many people, the 2nd pension pillar will be the only real savings. Currently, the average savings in the 2nd pension pillar are slightly over 6,000 euros per participant, while the total capital accumulated in the 2nd pension pillar is 8 billion euros," the expert points out. As reported, the tax revision scenario, which the Ministry of Finance planned to present on Wednesday, August 21, but postponed the events due to criticism from business organizations, provides for an increase in the minimum wage, as well as the implementation of compensatory measures, which will allow the budget to receive 116.1 million euros in revenues. In particular, according to the presentation of tax changes prepared by the Ministry of Finance, in 2025 it is proposed to reduce the rate of mandatory employer contributions to state social insurance (VSAOI) by 1% – from the current 23.59% to 22.59%. At the same time, the rate of employee contributions will remain unchanged – 10.5%. The "ceilings" of mandatory state social insurance contributions will be increased from the current 78,100 euros to 105,300 euros. These changes are proposed to be compensated for by a temporary reduction in contributions to the state funded pension scheme (to the 2nd pillar of the pension system) by two percentage points.
