Retirement age is changing all over the Europe – why should I care? | Luminor

The end of 2019 and start of 2020 were loudly marked by French labor union strikes, that have been lasting for 51 days now and caused major discrepancies in people`s plans as transport system was crippled and even ballet dancers at the Paris Opera cancelled year end performances.

The reason for that is Macron`s proposed pension reform that deletes possibility for early retirements for 42 professions, including rail and energy workers, as well as lawyers and Paris Opera staff. The mandatory minimum retirement age is planned to be 62 years for all, bringing it in line with current official retirement age and full pension to be obtained only at the age of 64.

Meanwhile, new wide pension reform in Ireland assumes that by 2028 retirement age will increase till 68 and after 2035 it will be directly linked to increases in life expectancy. According to Ireland Minister of Finance and Public Expenditure, children born after 2018 will live over 100 years, what is welcoming development, but evidentially challenges pension system`s sustainability.

While Baltic countries in general are heading towards retirement age of 65, some countries European countries, including Estonia made step forward and have introduced retirement age linked to life expectancy. During 2020 and 2030 a lot of changes are planned for retirement age all over the Europe and it seems, that almost no country will be left with pension time before 65 years.

What does it mean to me?

First, this means that with high probability you will stay alive and get your pension. During the last century life expectancy has risen rapidly, now exceeding 80 years in majority of developed and developing countries. Moreover, statistics show that if you are a woman in Latvia your life expectancy is to be 10 years more then for average man. So, if you still think that it is not important to take care of your pension capital it is time to rethink.

Second, even life expectancy is longer it doesn`t mean you will not meet health issues in the second part of your life. In most cases this means high expenditure for medicine and health manipulations, sometimes it means also having a break at work. This all means you must be able to finance this additional expenditure, having a good financial buffer on your bank`s account. The same goes for early retirement – if you dream to quit full-time working life by age 60 you have to be sure you have enough financial resources saved by that time.

Last, but not least, population in Europe and in Latvia is ageing rapidly. This obviously will put bigger pressure into countries pension budgets and will affect the amount of pension each person is going to receive from the State. In order to be on a safe side, it is necessary to commit to your future as well, by making real financial savings.  Latvian pension system is very favorable for any taxpayer- all 3 pension pillars are supporting each other, provide good diversification and quite an extensive benefit. According to recent Luminor survey, it is clear that people in general do not feel safe in an environment of continuous reforms in pension field, but in Baltic countries even those were more beneficial for pension system participants, providing much more freedom in choosing the way of how pension savings are made.

5 steps to better life in retirement

  1. Pay taxes

It may sound “groundbreaking”, but it is really something to mention. Our region EE/LV/LT is still suffering from huge grey economy and this is devastating. Paying taxes is not only mandatory exercise, supporting the State, but it is very important part of your own social security and your future stability. Taxes are the main part of your future pension.

  1. Choose fund manager of your pension savings wisely.

It is known that not many people are interested about their 2nd pension pillar savings. Meanwhile this is real money invested into financial market. Your responsibility is to choose pension savings manager, who will manage your money in good faith and with good results and choose pension fund, that is suitable to your age and risk appetite. Go now to and check who is managing your 2nd pillar savings now and remember that you have full freedom to change pension company once in a calendar year.

  1. Make your own contributions into pension fund.

Remember the old anecdote about God and a man, who was begging to win in a lottery? God asked him to buy a lottery ticket at least. It is quite obvious that in order to get good result you need to make some action. If you want to enjoy fruitful retirement, make saving now. And taking into account State support that is provided to 3rd pension pillar contributions, it is one of the first saving instruments to pick up for yourself.

  1. Plan your wealth.

In order to answer to question – how much I should save, you have to answer to question – how much I would like to receive? Unfortunately, in order to save a lot, you will have to do quite some planning, starting from your today`s spending and budget, including your kids education and other significant investments and up to the amounts of your pension payouts. But this planning will be paid off with positive results for sure.

  1. Find a good advisor.

It is not always that easy to plan everything in advance. Moreover, choice of pension managers, pension funds is quite big, and it is not that easy to choose without specific knowledge. Find someone you trust and who is competent in financial questions. Sometimes it is enough to go through couple of articles and specific web pages to get understanding of the topic. Sometimes it requires much more competence and assistance from side.
Be curious, don`t afraid to ask. This all is about our future and indifference is the worst we can do to ourselves.