Optimal Individual Choice of Contribution to Second Pillar Pension System in Lithuania
|Title||Optimal Individual Choice of Contribution to Second Pillar Pension System in Lithuania|
|Publication Type||Working Paper|
|Year of Publication||2014|
|Authors||Fiori Maccioni, A, Gudaitis, T|
|ISBN Number||978 88 84 67 866 9|
|Keywords||Lithuanian pension system, private pension funds, rational choice, second pillar|
The 2013 pension reform in Lithuania forced workers to choose their level of participation to the second pillar system. Three options were given: a lower contribution rate, a higher contribution rate with governmental subsidy, and to exit from the second pillar system. The aim of this article is to evaluate the best rational choice for individuals of different gender and age, depending on the expected financial returns of their second pillar accounts. Results reveal that the participation in the second pillar system is always more convenient than the abandonment, even under the conservative hypothesis of zero real rate of return. Because of the governmental subsidy, the higher contribution rate can be the best choice for young and middle-aged workers, and its convenience increases with higher expected returns.