Saving for the Future
Saving for the future. Pension reform in Lithuania.
Article: http://verslas.delfi.lt/manolitai/atejometasapsisprestidelpensijos.d?id=60991987
The Lithuanian government has decided to change the way that people save for their pensions once again. It mostly affects people who have already been saving for their pensions as new job market entrants will simply have to follow the rules set up by the government.
People will have three choices: 1) they can stick to the old way of saving; 2) They can go back to saving only in SODRA (state owned pension fund); 3) they can choose to save more in private funds by transferring 1% of their wage each month. If they choose the third option, the state will transfer 1% of the average monthly wage to the private pension fund on behalf of the person who chose the third option.
I believe that this is a nudge that will make people to think more about their retirement. If they choose to defer their consumption now and decrease it by 1%, the state will award them with payments into their pension funds. This will increase the savings that people have. Other two options carry no significant push to save more. Yet this one nudges people and makes them save more if they act rationally. It is a social nudge and as more and more people realise that this option is the best the concept of “following the herd” should kick in and eventually most of the people should choose this pension programme.
On the radio I heard that 75 percent of the people in Lithuania do not think that they have enough information about pension programmes (I am sorry, I do not have a reference, it was some sort of a survey). This reform should push people to look into their option and consider what is best for them. Therefore, more people should become informed, information about pension plans will become more widespread as new reforms always require a lot of explanations in the press/media. All people who read newspapers or watch the news should become
Article: http://verslas.delfi.lt/manolitai/atejometasapsisprestidelpensijos.d?id=60991987
The Lithuanian government has decided to change the way that people save for their pensions once again. It mostly affects people who have already been saving for their pensions as new job market entrants will simply have to follow the rules set up by the government.
People will have three choices: 1) they can stick to the old way of saving; 2) They can go back to saving only in SODRA (state owned pension fund); 3) they can choose to save more in private funds by transferring 1% of their wage each month. If they choose the third option, the state will transfer 1% of the average monthly wage to the private pension fund on behalf of the person who chose the third option.
I believe that this is a nudge that will make people to think more about their retirement. If they choose to defer their consumption now and decrease it by 1%, the state will award them with payments into their pension funds. This will increase the savings that people have. Other two options carry no significant push to save more. Yet this one nudges people and makes them save more if they act rationally. It is a social nudge and as more and more people realise that this option is the best the concept of “following the herd” should kick in and eventually most of the people should choose this pension programme.
On the radio I heard that 75 percent of the people in Lithuania do not think that they have enough information about pension programmes (I am sorry, I do not have a reference, it was some sort of a survey). This reform should push people to look into their option and consider what is best for them. Therefore, more people should become informed, information about pension plans will become more widespread as new reforms always require a lot of explanations in the press/media. All people who read newspapers or watch the news should become