If you are approaching your retirement age and you have been regularly making social insurance contributions, including those to the 2nd pillar pension scheme*, by the time you decide to retire, you should make a choice between these two options:
Lifetime pension insurance is a government-approved alternative to use your pension savings with more control over how the savings of 2nd pillar pension will be disbursed to you. Upon signing a lifetime pension agreement with an insurance company, you will be receiving both your old-age pension paid by the state, and the lifetime pension that consists of your 2nd pillar pension accrualsand 3rd pillar pension accruals, if you made contributions to it as well.
The lifetime pension contract offers the following options:
1. Determine the frequency of disbursement of your pension – once a month, once a quarter, once in six months or once a year. For example, if you choose payments once a quarter, you will be paid the total of three months’ payments, which is handy for some bigger purchases you were planning, like vacation trip, medical services, celebration etc. It becomes a way to “save up” some funds if you have sufficient funds for daily expenditures from the state’s old-age pension and other income.
2. Lifetime pension certificate allows you to leave the unused 2nd pension pillar accruals for inheritance to someone close to you in case you die during the guaranteed disbursement period stipulated in the agreement you signed with the insurance company.
By indicating your significant other as a beneficiary, you will make sure this person keeps receiving the disbursements of your lifetime pension until the end of the guaranteed disbursement period (not more than 20 years). In this case, any person can be the beneficiary, not only those direct heirs provided in the Civil Law. This is a great opportunity to make sure your efforts will do good for someone you hold dear even after you are gone. If you do not use this option, then the accrued 2nd pension pillar funds that had not been disbursed to you will be forwarded to the state budget. However, keep in mind that if you indicate a beneficiary, who will inherit the disbursements, in your insurance agreement, it may decrease the amount of the lifetime pension insurance calculated for you.
Also without signing the lifetime pension agreement with an insurance company, you can hand down your 2nd pillar pension accruals, however in this case there are some limitations regarding the choice of the heirs and the procedure of disbursement of the inheritance. Therefore, if you want more freedom to manage your 2nd pension pillar accruals, you might consider acquiring a lifetime pension certificate.
Important! As of 1 January 2023, upon being granted the old age pension, should the member 2nd pension pillar plan acquire the lifetime pension certificate for the funds accrued in 2nd pension pillar, then the following disbursements will be reduced in the amount of the lifetime pension disbursements:
Until the State Social Insurance Agency (SSIA) receives from the insurance company about the monthly disbursements of the lifetime pension, in these cases the old-age pension will be paid as advance in the previously accounted amount, but no longer than for one year.
You can apply for lifetime pension certificate only upon reaching the retirement age stipulated by the law and have decided to retire. In order to do so, go to the SSIA and file an application for the use of the accrued state funded pension capital, and in the menu “I want to use my capital accrued in the state funded pension scheme as follows” click on “Acquire lifetime pension insurance”. Within 10 business days, the SSIA will prepare the balance of the capital you have accumulated in your 2nd pension pillar and will give you the list of insurance companies to sign the lifetime pension agreement with.
Your task will be to carefully study the offers of those insurance companies and choose one of those in five months. If you do not sign an agreement on the lifetime pension insurance with any of the offered companies, the SSIA will add your 2nd pillar pension accruals to your 1st level pension accruals and your old-age pension will be accounted in accordance with the law “On State Pension”.
However, before making a decision on acquiring the lifetime pension insurance, we recommend you carefully study the rates and charges of the service provided under the agreement and other related costs, which may differ for every insurance company.
*Participation in 2nd pillar pension plan is mandatory for those born after 1 July 1971, while it has been and still is voluntary for those born between 2 July 1951 and 1 July 1971 inclusive.
