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On Wednesday, the government endorsed a finding by the Ministry of Social Security and Labor on the government and opposition initiatives. Minister Linas Kukuraitis says the ministry generally supports the intentions of parliamentarians, but proposes not indexing pensions only when both indicators are negative: gross domestic product (GDP) and wages.
“Instead of proposing to abandon the estimation of GDP, and in another project to propose to abandon the wage bill and estimates of GDP, establish that indexation is not carried out only if both indicators are negative. The position is based on the fact that gross domestic product is an important indicator of the economy. As the 2009 crisis showed, both the wage bill and GDP fell at the same time. If such a situation is repeated, the indexation of pensions should be suspended, ”said L. Kukuraitis at the government meeting.
The ministry said in a statement that the government approved on Wednesday an updated procedure to index social security pensions, which opens up opportunities to increase pensions by 7.17 percent next year. According to the ministry, this requires changing the formula so that a small drop in gross domestic product (GDP) does not become an obstacle to pension growth this year.
Currently, the rule is that pensions cannot be indexed if GDP growth or change in wage bill is negative in the current year and beyond. This means that even though Lithuania has experienced one of the smallest economic contractions in the entire European Union and the wage bill is growing, it would still avoid an increase in pensions, as one of the two indicators is slightly negative.
The Cabinet of Ministers proposes that pensions should not be increased only in cases where both indicators, change in GDP and change in the wage bill, look poor.
According to L. Kukuraitis, in the current economic uncertainty, the ministry proposes to refuse to further increase the indexation coefficient.
The ministry argues that the ratio calculated on the basis of wage growth will only guarantee pension growth more than twice as fast as wages next year.
“Reaching the political goal of increasing pensions faster than wages and with 7.17 percent indexation achieves the goal, since pensions will increase twice as fast as the projected wage growth rate in 2021,” argued the Minister.
In September, parliamentarians began deliberations on how to change the current formula for indexing pensions.
Conservatives in the opposition believe that linking the coefficient to GDP growth should be abandoned.
The ruling “peasants” would like more room for maneuver. They propose, among other things, that the rule that the calculated indexation coefficient applies only if there is sufficient income from the social security type of pension to pay the increased pensions.
The explanatory memorandum of the “peasant” initiatives establishes that the adoption of the amendments “would stop indexing only when the calculated CI (indexation coefficient – BNS) does not reach one percent”.
The indexation of pensions has been carried out since 2017. In that year, due to indexation, pensions grew by 6 percent, in 2018 by 6.94 percent, in 2019 by 7.63 percent and in 2020 by 8.11 percent.
According to the latest forecasts, old-age and disability pensions could grow by at least 7.17% in 2021. The average old-age pension would then increase from € 377 to € 404 and the average old-age pension with the required seniority from € 399 to € 428.
Indexing pensions for next year would require an additional LTL 249 million from Sodra and the state budget. euros.
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