OECD Urges Latvia to Raise Minimum Pension

The Organisation for Economic Co-operation and Development (OECD) has recommended Latvia raise its minimum pension in order to reduce poverty amongst the elderly. The recommendation is made in a new report which assesses Latvia’s pension system according to OECD best practises and guidelines.

Demographics are a key factor in the report’s findings. Latvia’s working-age population (people aged between 20 and 64 years) is expected to fall by about 20 per cent over the next two decades, due to low fertility rates, increasing life expectancy and high emigration. The pension system is designed to automatically adapt to demographic trends. While this will secure the system’s financial stability over time, it will also reduce pension benefits

Latvia’s old-age poverty rate is the second-highest in the OECD, after South Korea: more than 25 per cent of people aged 65 and older have an income below the relative poverty line. Older women are especially vulnerable: more than one-third of females over 75 live in poverty and the notional defined contribution (NDC) scheme does not offer survivor benefits for spouses.

At 64 euros per month in 2017, the basic pension represents 8 per cent of gross average earnings against the OECD average of 19 per cent and has not increased in nominal terms for more than 10 years. There is substantial room to increase the level of old-age safety nets, according to the report. In order to avoid a negative impact on work incentives, the minimum pension should be set so that each year of contribution increases the benefit.

Lithuania has also been the subject of an OECD report, and has been told that it too needs to address its demographic challenge.  The country’s population has been declining by more than 1 per cent annually since the early 2000s, as people leave to seek better-paid quality jobs abroad. The working-age population is forecast to decline by about 9 per cent between 2015 and 2020, and by a further 20 per cent in the 2020s. The old-age dependency ratio is thus expected to increase from 28 old-age people for every hundred working-age residents in 2015 to 46 in 2030, a sharper increase than in most OECD countries.

“To better share the fruits of economic growth, labour market inequalities and large regional disparities in employment and educational outcomes must be addressed,” said Stefano Scarpetta, OECD director for Employment, Labour and Social Affairs. “Moreover, efforts should be made to enhance job quality, given the still widespread informal employment and low wages. The share of informal workers not covered by social security or labour laws is higher than in any other EU country except Latvia.”

“Becoming a member of the Organisation for Economic Co-operation and Development is one of the most important strategic goals of Lithuania,” said Linas Kukuraitis, Lithuania’s Minister for Social Security and Labour. “We are glad that part of the OECD‘s recommendations for Lithuania are already being implemented. For example, the reform of Lithuanian Labour Exchange, increasing the adequacy of cash social assistance by increasing the amount of state supported income and introducing the amount of minimum consumption needs calculation methodology.”