LATVIAN PENSION SYSTEM: CALIBRATION BY CRISIS

The aim of the author was to identify and to study the social and economic factors that are currently shaping Latvian pension system and how these factors had been affected by crisis in short and long term. The author outlines the following major factors influencing Latvian pension system: depopulation due to both natural decrease and to massive emigration are leading to increase of old dependency ratio; income gap between Latvia and Western Europe: pre-accession expectations of Latvian people concerning rapid shrinking of the income gap between "new" and "old" Europe after joining the EU have not materialized; globalisation of labour market allows Latvians to use job opportunities abroad, and quite often their choice is motivated also by the reasons of better social guarantees in host countries; globalisation of financial market and volatility of financial instruments make the assets accumulated in pillar private pension funds very vulnerable to the risk of devaluation; high unemployment rates affect pension system in three ways - 1) large numbers of unemployment benefit recipients complicates discharging obligations to existing pensioners; 2) unemployed persons make small or none contributions to their own future pensions; 3) future pensions are reduced for all future pensioners including those having full employment through the mechanism of pension capital valorization; shadow economy causes considerable distortions in pension schemes: the undeclared work results in lower contributions gathered from the working population, and affects both present and future pensioners; low level of confidence that Latvian people credit to the state pension system increases the demand for pension reform.