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It is estimated that the average old-age pension with the required seniority in 2021 will reach 428 euros, and the average pension – 404 euros. Currently, the average old-age pension with the required seniority is € 399 and the average pension is € 377.
The government also approved amendments to the Seimas on early retirement. If the law is passed, current and future early retirement beneficiaries would receive higher pensions until retirement age and beyond.
Updated formula: pensions would not increase if GDP and wage bill were negative
The indexation coefficient approved each year by the formula determines the increase in pensions for old age, incapacity for work, disability, widowhood and orphanhood.
According to the provisions of the Social Security Pension Law, the coefficient is calculated by deducting the average of the 7-year salary fund. To calculate the indexation coefficient for 2021, the variation in the wage bill for 2017, 2018 and 2019 and the forecasts for 2020, 2021, 2022 and 2023 are taken into account.
It is on the basis of these calculations that the Government plans to increase pensions by 7.17% next year.
However, the current rule is that pensions cannot be indexed if GDP growth or change in wage bill is negative in the current calendar 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.
Considering that both this year and next, the growth of the wage bill will be positive, the economic contraction this year due to COVID-19 is weak, and retirees and the disabled are those at the highest risk of poverty, the government approved a update of the pension increase formula.
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.
Pensions will grow faster than average wages
In 2020, at the initiative of the president, a further increase in the indexation coefficient was introduced. The main goal is to make pensions grow faster than wages. Next year, by increasing pensions by 7.17% and salaries by 3.3%, this goal will be achieved, so it is proposed to abandon the additional indexation.
The indexation of pensions started in 2018. Poverty risk indicators published by the Lithuanian Department of Statistics, which were calculated on the basis of income in 2018, showed that poverty among the elderly decreased the most, by 6 ,one%. point.
More generous early retirement
On Wednesday, the government also approved the Seimas initiative on amendments to the Social Security Pensions Law, which improve the situation of those who have opted for early retirement.
It is common that if a person retires earlier, they receive a benefit slightly lower than what would be paid when they retire at retirement age.
This is to ensure that the system is fair and favorable to those who make different decisions but pay similar or equal contributions. Suppose we compare two people of the same age and income, one of whom decides to retire early and the other does not, then naturally we would see that the total pension payment period of a person who retires early is extended, even though the contributions paid by both people are the same.
How much lower the early retirement pension and later the old-age pension will be depends on how soon that decision is made and the percentage of reduction provided by law.
For example, in the case of early retirement, the benefit for each month remaining before retirement age is reduced by 0.4%. If a person retires 30 months earlier, they will receive 12 percent. (0.4×30) lower pension than you would normally receive: that is, you would normally receive a pension of € 400 but would receive € 352. The pension remains the same percentage lower when a person reaches retirement age, although in the long term pensions increase due to indexation.
The Seimas has proposed reducing this percentage to 0.32 percent. and the Government agrees. This would mean that a person who retires early will receive higher benefits before and after retirement age.
For example, a person who retires 30 months earlier would receive 9.6% instead of 12%. lower pension. Therefore, if a person was normally entitled to a pension of EUR 400, the advance would reduce the benefit to EUR 361.6 per month instead of EUR 352.
A lower percentage would apply to both early retirement and old-age pensions. In better conditions, the anticipated pensions and the orphan’s pensions calculated until 2021, calculated on the basis of the amount of the anticipated pension of the deceased, would be recalculated and granted.
It is possible to choose an early retirement pension if there are no more than 5 years left to retirement age and, once the retirement age is reached, a person will have the time of service required for an old-age pension.
In 2021, the retirement age for women will be 63 years and 4 months, for men 64 years and 2 months, the required seniority for both sexes will be 32 years, but in the long run it will reach 35 years. Also, the beneficiary of an early retirement pension cannot receive other social, state insurance, social assistance pensions or pensions paid in another foreign country.
2020 July. According to the data, around 5.5 thousand received early retirement in Lithuania. recipients. In total, there are about 615 thousand. old age and 172 thousand. incapacity for work, disability pensioners.
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