The Effectiveness of the Pension System in Latvia: pensioner’s point of view

Abstract

Purpose system, which is considered the most progressive and modern system in the world, for the pensioners themselves. Scientific aim: The aim of the paper is to analyze the effectiveness of the Latvian pension system and find out minimal values of the initial parameters, which have an influence on the effectiveness, to make a pension system more effective for pensioners within corresponding Latvian legislation. Methodology/methods: The analysis is based on the comparison of the advantages and disadvantages of the hierarchical structure of the Latvian pension system and modeling basic financial parameters to reveal its influence on generating financial flows for pension funds and the effectiveness of each pension tier in the final analysis. Findings: The findings prove non-effectiveness of the Latvian pension system for the needs of pensioners. Depending on the tier of the pension system pension money generating by future pensioners are non-effectively managed by all pension funds. Modeling future pension payoffs shows the boundaries of the effectiveness of the pension system paying attention to the needs of future pensioners. Also the results bring to light an interesting idea how a future pensioner can manage his own free assets very easily and more effective than professional participants maintaining the pension system in Latvia. Conclusions: The represented results expose the problems with the effectiveness of the Latvian pension system from future pensioners‘ point of view and do not consider the problems from government’s side. It was shown that the effectiveness of the Latvian pension system could be improved and using the peculiarities of the Latvian economy a future pensioner can be more effective in his free money management than professional participants.