There are three types of second pillar pension plans: active, balanced, and conservative. Their main difference lies in the proportion of assets the pension plan invests in stocks. The higher the proportion of investments in stocks, the higher the potential return, but it also comes with higher risks due to often unpredictable fluctuations on financial markets.

The less the manager invests in stocks and the more in government and corporate bonds, debt securities, deposits in credit institutions, and other similar financial instruments, the lower the risk, but the profit potential may be lower as well.

The easiest way to choose the most suitable second pension pillar plan for yourself is to consider your age group and the number of years left until retirement.

• If you have more than 20 years left until retirement, you can confidently choose an active plan, within which 50% to 100% of the pension capital is invested in stocks. Thanks to the high proportion of stocks, such plans can achieve higher returns, although they come with higher risks, as economic crises or unsuccessful investments can lead to a decrease in the stock and bond prices, resulting in a loss of part of the accumulated funds. However, if the pension plan manager invests funds in various companies, sectors, and regions, the plan's returns are likely to increase again in the long run. Therefore, if retirement is still far away, short-term fluctuations in the stock market need not be a major concern, as they usually even out over time with higher profits.
• If you have less than 10 years left until retirement, it's time to consider how to reduce risks while maintaining moderate returns. For this purpose, balanced plans have been designed, where the proportion of stocks is limited to 25%. Thus, a balanced plan can be a middle ground between investment plans with higher risk, such as active plans, and low-risk investment strategies, like conservative plans, which are typically preferred by individuals approaching retirement age.
• If you have less than 5 years left until retirement, it may be time to prefer a conservative plan, where all funds are invested in fixed-income financial instruments such as government and corporate bonds, debt securities, deposits in credit institutions, and similar financial instruments. Since sudden fluctuations in the stock market and the resulting losses can significantly impact the size of your pension during the pre-retirement phase, this is precisely the period when preserving your pension capital with minimal fluctuations becomes more important than seeking high returns.

To sum up, younger individuals are recommended to choose an active planthat allows for greater capital accumulation through higher returns. For older individuals, plans with lower risks are more suitable, as at this age, preserving accumulated funds becomes more important, and less emphasis is placed on high profits. The most crucial thing to remember is that the higher the proportion of stocks in the plan, the higher the potential returns, but also the higher the risk. However, if retirement age is approaching, sudden fluctuations in the stock markets can lead to direct losses in your pension budget. Therefore, it is essential to make an informed and thoughtful decision.  

How often can you change the second pension pillar plan?

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.