Tax incentives as a part of governments’ applied mechanisms for the third pension pillar in Estonia, Latvia, and Lithuania
ENThe main objective of the improvements to public pension systems is to create a balanced three-pillar pension structure and increase public accountability for pension capital formation. Most pension systems are based on the first two pension system pillars – mandatory contributions in the state compulsory unfunded pension scheme and the state-funded or accumulated pension scheme in pension funds. However, the pension level adequacy has been reached by adding the third pension system pillar - voluntary investments in private pension funds. Governments are private pension system policymakers by defining a legal framework and providing tax incentives for voluntary investments for retirement. In the Baltic countries – Estonia, Latvia, and Lithuania, the third pension pillar is at an early stage of its development, and as such, should be particularly stimulated. This research focuses on the tax incentives utilized by the governments of Estonia, Latvia, and Lithuania and aims to ascertain and compare the effectiveness of the tax incentive policies applied to the third pension pillar by the governments of the three Baltic countries. It questions the effectiveness of the incentive mechanisms the governments of the Baltic countries have chosen, which include involving most of the population in the private pension saving programs. The research methods used are the analysis of scientific publications on the previously conducted research, acts of legislation of Baltic countries, as well as an analytical study of statistical data on the development of voluntary pension fund contributions in Estonia, Latvia, and Lithuania. The research results indicate that the tax incentives are the mechanism to motivate the population to create savings in the third pension pillar in all three Baltic countries.However, Latvia being the country with the highest coverage rate of the third pension pillar has the most unfavorable conditions for creating savings. There are no tax incentives on returns on investment and tax-exempt withdrawals in Latvia, while Estonia and Lithuania have all positions tax-exempt. A more detailed analysis of the tax incentives at the contribution stage explains the underdeveloped third pension pillar in Lithuania, as Lithuanian personal income tax reliefs are targeted at low or medium wages or gross income. The research has highlighted the impact of tax incentives on voluntary savings for retirement in the three Baltic countries, opening a discussion about the effectiveness of governments' applied mechanisms. [From the publication]
- Adequacy and equity of pensions as a function of pension system institutional desigh : a case of the Baltic States : disertacija / Olga Rajevska. Rīga, 2016. 1 pdf (193 p.).
- Changing the financing of the Lithuanian pensions system / Teodoras Medaiskis. International social security review. 2001, 54, 2-3, p. 127-137.
- EU's political actions for the enhancement of macroeconomic stability in confrontation with great economic recession / Rasa Daugėlienė. Entrepreneurship, business and economics : proceedings of the 15th Eurasia business and economics society conference. Vol. 2 / edited by Mehmet Huseyin Bilgin, Hakan Danis. Cham: Springer International Publishing, 2016. P. 647-663.
- Evaluation of the 3rd pillar pension funds in Lithuania / Daiva Jurevičienė, Marina Volkova. Journal of business economics and management. 2014, Vol. 15, no. 4, p. 684–707.
- Interrelation of misleading advertising and solutions of consumers: legal regulation and institutional background in Lithuania / Monika Liepinytė, Rasa Daugėlienė. European integration studies. 2012, No. 6, p. 192-201.
- Modern pension system reforms in Lithuania : impact of crisis and ageing / Audrius Bitinas. Jurisprudencija. 2011, Nr. 18 (3), p. 1055-1080.
