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Optimal Individual Choice of Contribution to Second Pillar Pension System in Lithuania

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  • T. Gudaitis
  • A. Fiori Maccioni
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    Abstract

    The 2013 pension reform in Lithuania forced workers to choose their level of participation to the second pillar system. Three options were given - a lower contribution rate, a higher contribution rate with governmental subsidy, and to exit from the second pillar system. The aim of this article is to evaluate the best rational choice for individuals of different gender and age, depending on the expected financial returns of their second pillar accounts. Results reveal that the participation in the second pillar system is always more convenient than the abandonment, even under the conservative hypothesis of zero real rate of return. Because of the governmental subsidy, the higher contribution rate can be the best choice for young and middle-aged workers, and its convenience increases with higher expected returns.

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    Bibliographic Info

    Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 201402.

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    Date of creation: 2014
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    Handle: RePEc:cns:cnscwp:201402

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    Keywords: second pillar; rational choice; private pension funds; Lithuanian pension system;

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