THE FINANCIAL ILLITERACY OF LATVIANS UNDERMINES THEIR WELL-BEING IN OLD AGE

An extremely individualized NDC + FDC pension system in Latvia assumes the individuals' overall responsibility for the amount of their future pension, both in pillar I and II. Meanwhile, specific tax regimes - for the self-employed, for seasonal workers, for workers of the so-called microenterprises - with low social contributions have gained popularity, and the share of the shadow economy is large, eventually leading to the situation when more than a third of all taxpayers pay social contributions from the base lower than the statutory minimum wage. In many cases they do it without realizing that their future pensions will also be minimal. For the pillar II, this is aggravated by the fact that more than threefourths of the participants do not control the profitability of their savings in pension plans. Although Latvian legislation allows changing pension plan and fund manager, more than 90% do not use this opportunity, and almost half of those who use it have done so under the influence of advertising, rather than rational thinking. The pillar II share in public old-age pension benefits in the course of time will constitute an increasingly significant part. In Latvia, all persons born after June 1971 are mandatory participants of pillar II pension funds, as well as the majority of those who were given the opportunity to join them voluntarily. Having shifted responsibility for their future pensions entirely to workers, the state and fund managers could take a more serious part in their financial education.