The vast majority of people in Lithuania – 83 per cent – expect after retiring to live off state social insurance (SODRA), while only a relatively small share of respondents will utilise other forms of saving and accumulation for old age: 36 per cent will support themselves with pension fund pay-outs and 11 per cent will count on permanent life insurance benefits.
A fifth of the country's residents expect in retirement to live off their savings, and 11 per cent from real estate they own, while 17 per cent plan to continue working and 6 per cent of survey respondents said they thought their children would support them in old age. Investments were indicated as a source of retirement income by 4 percent of respondents.
Financial experts estimate that living with dignity in retirement requires ensuring about 80 per cent of one's pre-retirement income level. Most respondents named similar amounts: 40 per cent said that in retirement they would need the same level of income they get now, while 34 per cent said they would need at least 75 per cent of their current income. Another 8 per cent said half of current income would be enough, and 4 per cent would be satisfied with 35 per cent of current income.
Such were the expectations and forecasts of income sources revealed by a survey of the investment and saving habits of Lithuanian residents which was conducted on behalf of INVL Asset Management.
Expectations clash with reality
"The survey's results reveal a gap between people's financial needs after retiring and the real situation. Most people would like to get 75 to 100 per cent of their current income, but most often they expect to rely on SODRA. Those planning additional income sources are much fewer, and moreover, nearly a fifth intend to continue working after retirement," said Dr. Dalia Kolmatsui, the head of INVL Asset Management's sales network.
In her view, already today it is unrealistic to expect to live well on a state social insurance pension getting the same income as today. At the start of this year, the average salary in the country before deducting taxes was 748 euros. Meanwhile the average old age pension was just below 266 euros, or barely 35.5 per cent of the average salary.
"This gap is likely to increase over time due to demographic and social problems. So in order to live with dignity in old age, saving additionally for retirement using various financial instruments is highly recommended. One of the most popular ways worldwide is pension funds, which are also gaining traction in Lithuania," Dr. Kolmatsui said.
Some people don't know how they'll support themselves in retirement
The survey showed pension funds are the second most popular source of retirement income that people foresee. Pension funds were mentioned most often as a future source of livelihood by 42.9 per cent of residents of large cities, by 81.3 per cent of people in management positions, and by 57 per cent of professionals and clerical workers. Pension funds were also more frequently seen as a source of income by people with a higher level of income and a higher education (65.9 per cent and 54.4 per cent, respectively). By age groups, the largest proportion of people who plan to support themselves with pension funds was among those aged 26-35 (65.3 per cent) and 36-45 (nearly half).
According to the survey data, residents aged 18-25 rely the least on getting a SODRA pension in their old age (73.7 per cent). But that same group contains the most, almost 16 per cent, who do not know where they will get income to support themselves in retirement. Only a fifth of the respondents in this age group indicated pension funds as a source of retirement income. Most of those who do not know how they will support themselves in old age are also among those with the lowest income (8.8 per cent), high school or college/university students (21.8 per cent) and small business owners (13.2 per cent). Those who have formed families seem to more actively plan for the future – respondents who have not formed families were twice as likely as them to be unable to say how they would support themselves in old age (13.6 per cent vs. 6 per cent).
"The survey shows that people who are more educated, have families and earn more assume greater responsibility for the future. It’s paradoxical, but the young generation which is paying little attention to that has the greatest possibilities to accumulate enough money for a dignified old age. It’s recommended to start accumulating as early as possible and change pension funds over the course of one's life on the basis of one's age," Dr. Kolmatsui noted.
Bank of Lithuania data show there were 1.26 million participants in the country's pension funds at the end of 2015. The assets under management of 2nd pillar pension funds were 2.12 billion euros, while those of 3rd pillar pension funds were 61.45 million euros. The representative survey of investment and saving habits was conducted on behalf of INVL Asset Management by the research company Spinter Tyrimai, which in February this year interviewed 1,011 Lithuanian residents aged 18 to 75.
INVL Asset Management manages eight pension funds and five mutual funds. It is part of Invalda INVL, one of the Baltic region's leading asset management groups. Companies in the group manage pension and mutual funds, alternative investments, individual portfolios, private equity and other financial instruments. More than 150,000 clients in Lithuania and Latvia as well as international investors have entrusted them with more than 340 million euros of assets.