How much money do you lose staying with 2nd pillar pension plan not suitable for you?
June 21, 2024

Did you know that the first 2nd pillar pension investment plan is chosen for you by the State Social Insurance Agency (SSIA)? Therefore, if you are employed and paying social insurance contributions from your income every month, and have never ever changed your 2nd pillar pension plan, it is highly probable that your money automatically goes to some pension plan initially randomly chosen by the SSIA. Even if you have changed it over time, there is still a chance it is not suitable for you.

Unfortunately, SSIA data on 2nd pillar pension investments in various pension plans in 2023 show that tens of thousands of Latvian citizens have been investing their pension accruals in plans not suitable for their age, which seriously decreases the amount of their future pension.

This situation can be partly explained by the fact that until 2022, the State Social Insurance Agency automatically enrolled all new 2nd pension pillar participants who had not chosen an investment plan themselves into conservative plans. However, this choice is not recommended for young people, as it is advisable to invest in active plans at the start of their careers, which offer higher returns and allow for quicker growth of pension capital. In contrast, in your midlife years, it is recommended to gradually transition to more conservative plans, which are less risky and focus on capital preservation rather than profit generation. Learn how to choose the most suitable 2nd pension pillar plan in this article.

How does long-term performance of the pension plan affect your pension accruals?

Every month 5% of your gross salary or other income you pay social insurance contributions from are forwarded to 2nd pillar pension*. For example, if your monthly salary is 1000 EUR before taxes, then 50 EUR from it automatically go to 2nd pillar pension, which means 600 EUR a year go into your pension accruals. Moreover, this amount grows every year as the contributions continue adding up. The task of your 2nd pillar pension manager is to invest your contributions in various types of financial instruments in order to make your pension grow.

Assuming you are 30 years old and average long-term yield of your pension plan is 4.8% annually, then, using Signet pension calculator you can see that by the time you will start receiving your retirement pension your projected 2nd pillar pension accruals will constitute 67 305 EUR.

What would change in those calculations if the long-term yield of your 2nd pillar pension plan was 1.7% higher? Our calculations show that, given that all the other conditions stay the same, your pension accruals would grow by 47%, constituting extra 31 774 EUR. That’s a lot of money, isn’t it?

Projected pension accrual*:67,305
Projected pension accruals (+1.7% to the long-term yield)99,079+47%

*Calculations made assuming your 2nd pillar pension accruals constitute 3 monthly salaries with 2% average annual increase of salary, projected average yield of 4.8% annually (not guaranteed), total commission fee 0.6% annually.

Even though these calculations are rather theoretical, since they are affected by many variables the main one being your salary throughout the years, yet it stills gives you a perspective of how much your pension is affected by being kept in the wrong 2nd pillar pension plan with long-term return lower as little as few percent than other similar plans. As you can see, it means tens thousands of euros of your pension capital.

How to choose the most suitable 2nd pillar pension plan?

The easiest way to choose the most suitable 2nd pillar pension plan is based on your age and the number of years there are left until your retirement pension. If there are dozens of years till your retirement, choose an active plan that will help you accumulate more capital through higher yield.

However, if you have less than 10 years till your retirement, you should prefer low-risk pension plans, because at this age it is important to protect what has been accrued, not chasing profits so much.

When choosing 2nd pillar pension plan, always pay attention to its long-term yield over the years. The higher it is, the higher your pension accruals can potentially be. Learn more about types of pension plans and choosing the suitable one for you here: How to compare the second pillar pension wisely?.

You can change your pension plan manager once a year

You’re not supposed to stay with your current pension plan forever, because Latvian laws allow for changing 2nd pillar pension manager once in a calendar year, while switching between pension plans within each manager is allowed twice in a calendar year. That leaves a certain flexibility to you in entrusting your savings to the manager you are sure about and in choosing a pension plan that fits your age and long-term goals. Moreover, you don’t need to pay anything to anyone for switching the plans.

You can find out which asset manager is managing your 2nd pension pillar capital by going to www.latvija.lv and opening page “SSIA Information and Services”. If you want to change your asset manager, select the online service"Choice or change of 2nd pension pillar investment plan".


Signet Pensiju Pārvalde IPAS
Antonijas Street 3, Riga, LV-1010
+371 6700 2777

Business hours:
I-IV: 09.00-17.30
V: 09.00-14.30

[email protected]
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