3rd pension pillar

Worth it! Invest in your 3rd pension pillar

Worth it! Invest in your 3rd pension pillar

  • 1st and 2nd pension pillars alone will not be enough to maintain the current standard of living
  • A downturn in financial markets is a good time to buy pension plan shares at a cheaper price
  • Get a personal income tax refund of 20% from your contributions*
  • Make the change by investing in Luminor index pension plan Sustainable Future

Receive your savings from the age of 55

The accrued capital can be inherited

Determine the frequency and amount of contributions yourself.
Stable long-term performance**

Choose a more Sustainable way of saving for pension

Why save in the 3rd pension pillar? Learn more about situation in financial markets

What is the reason for downturn in financial markets and what are the forecasts?

The invasion of Ukraine has brought inconceivable loss for Ukrainians and significantly increased geopolitical uncertainty for the whole world. It has also had an economic impact.

Financial markets across the world have reacted negatively, with equity markets selling off and oil price spiking. Western countries are punishing Russia’s military action by imposing sanctions and trade restrictions. As the war continues, the prices of goods and services continue to rise, and central banks have been forced to raise interest rates.

High inflation rates and related raise of interest rates by central banks have created concerns about possible slowdown in economic growth, which has contributed to heightened volatility in both stock and bond markets. How long these fluctuations will last will largely depend on the indicators of inflation and economic growth indicators in the coming months, as financial market participants expect a turnaround in inflation growth. Reaching the highest inflation point would allow us to anticipate with more confidence the expected rise in interest rates and its impact on economic growth forecasts. As uncertainty declines, it is easier for financial market participants to estimate the fair value of assets and volatility in financial markets tends to decrease.

What is Luminor's response to what is happening in the financial markets?

Investments in Luminor pension funds/plans are widely diversified by region and industry. The main goal of Luminor's pension plans/funds investment strategy is long‑term sustainable return, but short‑term volatility and periodic market turmoil are inevitable.

It is important to understand that short‑term negative value fluctuations are normal and an integral part of the investment process.

Luminor Asset Management team has reduced the risk of its investment portfolios since the beginning of this year. This was done mainly to avoid the negative effects that tighter monetary policy is likely to have. As a result, our total equity investments have been slightly lower than required by the strategy and we have shifted some of our equity investments to more stable industries, which tend to perform relatively more stably at indefinite times.

We will continue to monitor the conflict, assess the possible economic consequences and adjust the portfolios accordingly. In the meantime, we look forward to the restoration of peace in Ukraine soon.

Why start now 3rd pension pillar savings?

We must continue to think about our future and our prosperity after retiring. 3rd pension pillar savings are long term and should be based on a long‑term vision. 

Long‑term savings with regular contributions during both downturns and booms in financial markets are a type of investment that reduces the impact of financial market fluctuations. This is typical practice for pension savings, as it results in growth of accumulated capital by counteracting short‑term fluctuations. It is important to maintain the frequency and amount of contributions to ensure positive result.

The downturn in the financial markets for long‑term savings with regular contributions is also a good time to buy parts of pension plans at a cheaper price.

And, of course, we must not forget about the great additional benefit of supplementary pension savings – participants of the 3rd pension pillar can recover personal income tax in the amount of 20 % of the contributions made to the supplementary pension savings (made by themselves or their spouse), which does not exceed 10 % (together with life insurance (with accumulation of funds) premium payments) of gross salary, max. EUR 4,000.

Why should I continue to make contributions, if accumulated capital decreases not increases?

"Loss" is actual loss at the time the funds are withdrawn (units of the pension plan/fund are sold). For a higher long‑term result, it is important to maintain the frequency and amount of contributions (or even increase) when purchasing securities during the downturn in the financial markets, when their prices have fallen. Financial markets, like the economy, are cyclical: the recession is followed by an upturn and long‑term economic growth is on a positive trend. Financial markets largely reflect the growth of the global economy and, as historical data show, long‑term investment returns are positive.

If I am 55+ years old, is it safer now to stop supplementary pension savings and withdraw money to protect myself from further losses?

First of all, it is necessary to assess whether these funds will be needed in the nearest future. If it is possible to continue create supplementary pension savings, this would be the most appropriate decision at this time.

Short‑term negative fluctuations of assets value are normal and are an integral part of the investment process, as the growth of the global economy is also cyclical – periods of upswing and recession are interchangeable, but in the long run growth is positive.

Luminor Asset Managers  will continue to monitor the situation as a result of the conflict, assess the potential economic consequences and adjust our portfolios accordingly.

What investment strategy is the most appropriate right now - is it better to choose more conservative plan?

Regardless of the situation in the financial markets, it is very important that the pension investment strategy is in line with the planned period for 3rd pension pillar savings:

  • If the planned supplementary pension savings period is at least another 10 years – the value of the pension plan assets has enough time to recover from the decline and create a positive increase in accrued capital. The most suitable pension plans/ funds in this case would be the Luminor Index Pension Plan Sustainable Future Plan, where up to 100 % of assets are invested in index funds with high sustainability (ESG) standards, or the Luminor Progressive Pension Plan, where up to 75 % of plan assets are invested in equity funds.
  • If the planned supplementary pension savings period is shorter than 10 years – it is worth considering changing the investment strategy to less risky – choose plans/funds with a lower share of investments in equity funds. For example, create a savings by combining the Luminor Progressive Pension Plan with the Luminor Balanced Investment Plan, thus reducing the share of investments in equity funds to 50 %. It is important to remember that in less risky plans, growth is slower, but safer in the short term.

All important factors (such as risk tolerance, investment period, investment goals and more) must be considered very carefully when deciding on the most appropriate investment strategy.

Choose the most suitable savings strategy for you

Investment maturity* Proportion of stock** Pension plan / strategy***
15 years and over Up to 100% Index pension plan Sustainable Future
From 10 to 15 years Up to 75% Progressive Pension Plan
From 5 to 10 years Up to 50% 50% Balanced Pension Plan + 50% Progressive Pension Plan
Less than 5 years Up to 25% Balanced Pension Plan

* Investment maturity in is the period that is planned for the implementation of 3rd pension pillar savings. The minimum maturity for savings is reaching the age of 55. After reaching the age of 55, it is possible to continue the investment and set the desired withdrawal period.
** Proportion of stock - the maximum limit for investing pension plan funds in equity securities - company stock and other similar types of investments.
*** You can choose to make contributions to one or more pension plans depending on your investment maturity and the most suitable proportion of stock.

Choose the most suitable pension plan:

Index pension plan Sustainable Future

  • Savings plan with a maturity of at least 15 and more years
  • Up to 100% of the funds of the plan are invested in equity index funds
  • An index pension plan that invests only in index funds with high sustainability (ESG) standards

Find out more about the index pension plan Sustainable Future

Luminor Progressive Pension Plan

  • Savings plan with a maturity of more than 10 years
  • Up to 75% of the funds of the plan are invested in stock
  • The plan invests in both international financial markets and Latvian financial instruments

Luminor Balanced Pension Plan

  • Savings plan with a maturity of less than 10 years
  • Up to 25% of the funds of the plan are invested in stock
  • The plan invests in both international financial markets and Latvian financial instruments

Pension plans` performance

Useful links

Pension plan applications
About contributions to pension plans
Accounts for contributions and bank account specification
Basic information for pension plan members
Pricelist

Luminor 3rd pillar pension plans are administered by Latvijas atklātais pensiju fonds, reg. No. 40103331798, Skanstes iela 12, Rīga, LV-1013, and is managed by Luminor Asset Management IPAS, Skanstes iela 12, Rīga, LV-1013. The custodian bank is Luminor Bank AS Latvian branch. The supervisory authority of Luminor Latvijas atklātais pensiju fonds AS is the Financial and Capital Market Commission.
Disclaimer
Before choosing the specific pension plan you should consider the following risks:
• the more investments thereunder are being made into stocks and other instruments comparable to them the more risk of income fluctuation this entails (both to positive and negative direction);
• historical income results generated by specific pension plans do not guarantee the same results in the future;
• choose the pension plan with active investment strategy only if you understand the risks it entails and can financially bear them;
• the closer you are to the retirement age the more conservative pension plan would be the best option for you.
Luminor Latvijas atklātais pensiju fonds AS (hereafter - Pension Fund), informs that pursuant to the Clause 29 sub-clause (7) of the Law on Private Pension Funds, the engagement policy and voting rights on behalf of Pension Fund implements manager of funds - Luminor Asset Management IPAS, which engagement policy is available here.