What to take into consideration to bequeath 2nd pillar pension savings?
As of the coming year, in Latvia will be opened an opportunity to bequeath 2nd pillar pension savings. Subject to inheritance will be the entire pension capital accumulated after 2020 as well as 80% of savings accumulated by the end of 2019. It is important to take note that a person must choose between two options to bequeath the savings. Where such choice is not made, the 2nd pillar pension cannot be subject to inheritance.
Bequeathing the 2nd pillar pensions – a concession to taxpayers
Another important facet: the new amendments provide for an opportunity to bequeath the accumulated capital prior to the retirement age. Before there was a chance to use the life pension insurance after reaching the legal retirement age, which subject to various conditions allowed bequeathing of accumulated 2nd pillar pension capital.
Bequeathing and inheriting of 2nd pillar pension capital will become possible as from 2020. These amendments are of particular importance, as tax allocation frequently matter more than the tax amount itself. This capital is accumulated for the old age to reduce reliance on the 1st pillar pension, which only depends on the ratio between the number of persons in work and retirees as of the moment of pension payment. 2nd pillar pension, in turn, is comprised of the taxpayers’ money representing 6% of their gross salary, and the new amendments instil certainty for everybody that the 2nd pillar pension capital is owned by the particular person. The entire capital accumulated by the end of 2019 will be subject to inheritance by 80%, while as of 2020 the savings will be bequeathed in full.
To bequeath, one must make a choice
Furthermore, one should take into consideration that in case of failure to explicitly indicate one of the 2nd pillar bequeathing options, upon one’s demise before the retirement age the accumulated funds will be credited to the special state budget like before. To bequeath the saving, one must opt for one of two possibilities. According to amendments to the State Funded Pension Law effective as of 1 January 2020, the pension capital can be added to 2nd pillar pension savings of another person, on condition that only one person can be chosen for this purpose. Another option is to bequeath the pension capital according to the procedure of the Civil Law, which provides for the capital disbursement in cash, also to several heirs. The procedure for making one’s choice regarding the inheritance will be stipulated by the Cabinet of Ministers.