Central bank warns of shrinking pensions due to demographic shift

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An aging society coupled with other factors means the average pension could shrink to 24% of the average wage in the country by 2050-2060, said Bank of Latvia economist Uldis Rutkaste.

"Currently the average pension before tax is about 40% when compared to the wage. If someone earns €1,000 before tax, they can expect a pension of about €400. [..] In the future the size of this relative pension will be much lower," Rutkaste said appearing on Latvian Radio April 8.

He said that such a perspective could create social friction which could translate itself into protest votes in elections.

The economist said that the share of employed people versus pensioners is shrinking. Currently there are about 37% pensioners as opposed to working-age people, while in 2060 there could be 67%.

Furthermore, as life expectancy is increasing, people spend more time in retirement. Therefore it will make sense to increase the age of retirement, but Rutkaste conceded that it's not a serious topic for Latvia for the next few years.

However the health of the nation is of utmost importance if retirement age is to be upped. Therefore healthcare problems should be solved urgently to prevent problems in the future.

Different tax regimes can likewise prove to be a problem, and battling the shadow economy is likewise substantial for solving pension-related problems.

Rutkaste said that while Latvia's pension system shouldn't be changed radically, it should be regulated so as to prevent social friction in the future.

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