Overview of Lithuania’s Upcoming Pension System Reform: What Changes in 2026?

 

ISM Student Investment Fund | November 2025Authors: Jokūbas Bandza, Elzė K. Petrauskytė, Tadas

 

 

 

Pension pillars:

 

I pillar - state social insurance pension

    • The first pillar is a state-paid pension intended for people who have worked and lived in Lithuania for at least 15 years.
    • The size of the pension depends on the accumulated length of service, the pension points held by the person and the state indicators in force at that time.
    • Typically this pillar makes up around 30% of former income.

 

II pillar - supplementary pension accumulation

    • The second pillar is voluntary and supplementary accumulation for old age in pension funds that are managed by pension accumulation companies.
    • Contributions consist of two parts:
      • the contribution from salary (3%),
    • the state incentive contribution (1.5%).
    • On average this pillar can ensure about 45% of former income.

 

III pillar - individual accumulation

    • The third pillar is completely voluntary. One can accumulate there personally, and contributions can also be paid by the employer.
    • III pillar pension funds are managed by pension fund managers. A person chooses the level of risk by choosing a fund.
    • An important advantage: if there are no more than 5 years left until retirement and the contract has been in force for at least 5 years, the payments are not taxed with 15% personal income tax.

 

 

Changes:

 

    • Enrolment:
      • From 2026-01-01 automatic enrolment into the II pillar will be abolished. People will have to make their own decision whether they want to accumulate.
    • Exit:
      • From 2026 January 1 to 2027 December 31 a transitional period will apply during which all participants of the II pillar will be able to voluntarily exit it.
      • The following will return to Sodra:
        • the state incentive contribution (paid since 2013),
        • the earlier part of Sodra contributions (until 2019).
        • these funds will be converted into pension points and will increase the future state pension.
    • The following will be transferred to the person:
      • personal contributions,
      • investment return.
      • this amount is not taxed and there are no additional deductions.

 

 

Withdrawal:

 

    • Before retirement:
      • Once in a lifetime it is possible to withdraw up to 25% of the accumulated funds, but no more than has been contributed personally. A 3% deduction is applied.
      • If there are less than 5 years left until retirement and the accumulated amount does not reach half of the mandatory annuity threshold, it is possible to withdraw everything (also with a 3% deduction).
      • If a person is seriously ill or has 70–100% incapacity for work, all funds can be paid out without deductions and without personal income tax.
    • Upon reaching retirement age:
      • If the amount does not reach the annuity threshold, the person can choose a lump sum payment or periodic payments, or to purchase an annuity.
      • If the amount exceeds the threshold, an annuity is mandatory and the part exceeding the threshold can be paid out in a lump sum.
      • For people who have reached retirement age the 3% deduction is not applied.

 

 

Opinions of experts and politicians

 

Chairman of the Board of the Bank of Lithuania Gediminas Šimkus (LB):

    • Urges not to rush in making decisions, people are given two years for consideration (Šimkus, 2025).
    • Notes that large withdrawals in the short term could slightly stimulate the economy (by about 0.5 percentage points) (Šimkus, 2025).

 

Swedbank chief economist Greta Ilekytė:

    • According to her, in the future the state pension alone may not be sufficient, due to demographic changes the number of people who can support pensioners will decrease (Ilekytė, 2025).
    • Possible future consequences: higher taxes, increased risk of poverty, higher retirement age, greater immigration or very small pensions (Ilekytė, 2025).

 

Luminor chief economist Žygimantas Mauricas:

    • Predicts that residents will withdraw about 2.5 billion euros of funds accumulated in the II pension pillar, that is about 25% (Mauricas, 2025).
    • “We will participate in a money injection party and later we will deal with the consequences, we will live in a hangover period” (Mauricas, 2025).

 

Ingrida Šimonytė (TS-LKD):

    • Says that she herself would not consider exiting, because she wants to diversify risk and save in several ways (Šimonytė, 2025).

 

Viktorija Čmilytė-Nielsen (Liberal Movement):

    • Criticises the reform by reminding of the Estonian example where most of the withdrawn funds were quickly spent and people did not choose alternative investing, thereby harming their long-term financial situation (Čmilytė-Nielsen, 2025).

 

Simonas Gentvilas (Liberal Movement):

    • States that the new reform is harmful to the private pension accumulation system (Gentvilas, 2025).

 

Inga Ruginienė (LSDP):

    • Defends the reform, in her words greater flexibility will increase trust and will encourage people to accumulate voluntarily (Ruginienė, 2025).

 

Remigijus Žemaitaitis (Nemuno aušra):

    • Openly says that he does not trust pension funds and, if he could, would abolish them altogether (Žemaitaitis, 2025).

 

 

Summary

 

Mandatory pension accumulation in the II pillar is a complex and highly politically charged issue that has huge implications for the country’s economy. With continuously declining birth rates and population in Lithuania, in 2022 there were about 3.1 working people per one person of retirement age, and by 2050 this number may shrink even to 1.8 (Načajienė, 2022). Some welcome the liberal reform that encourages taking more personal responsibility and freedom of choice when saving for retirement, others see disproportionate risk and possible negative consequences of the reform for the country’s economy. Both sides of the political discourse are engaged, the Social Democratic Party together with the ruling coalition are implementing their electoral promises, while the current opposition is usually inclined to represent business interests. Based on the data of the Lithuanian Investment and Pension Funds Association (LIPFA), more than 10 billion euros have been accumulated in II pillar pension funds (“Kaupiančiųjų antroje pensijų pakopoje turtas perkopė 10 mlrd. eurų”, 2025), and direct investments into shares of Lithuanian companies make up about 1.5% (“Būsimų pensininkų lėšos vis gausiau investuojamos Lietuvoje”, 2025). According to LIPFA board member P. Kabelis (2025), over the past several years Lithuanian pension funds often acquired more than 10 or even 20% of intensively placed bond issues of Lithuanian companies. If residents withdraw part of the funds invested by pension funds, economic growth may slow down. Also, inconsistent government decisions create the impression of an unreliable investment environment for both domestic and foreign investors. Forecasts that residents will rush to withdraw their II pillar savings are strengthened by the very limited two-year opportunity window. A huge amount of money entering the country’s economy without real created added value will stimulate short-term private consumption. It is predicted that due to sharply increased consumption inflation will jump, therefore already around 2028 the government may have to increase consumption taxes and or the Bank of Lithuania may have to raise base interest rates (Mauricas, 2025). These changes are very relevant for our fund and for Lithuanian investors. If residents simply spend the pension fund money they withdraw instead of investing it, the capital directed to Lithuanian financial markets and the economy will decrease. The likely deterioration of the economic situation would only increase this effect. This could lead to a contraction of capital available to funds, a worsening Lithuanian investment climate and slower economic growth. Long-term motivation to accumulate may weaken and it may become more difficult for funds to plan their strategies.

 

References

 

Būsimų pensininkų lėšos vis gausiau investuojamos Lietuvoje – Lipfa. (2018). Lipfa.lt. https://lipfa.lt/busimu-pensininku-lesos-vis-gausiau-investuojamos-lietuvoje/

Burinskas, A., & Nuotr, A. A. (2025, November 14). Arūnas Burinskas. Milijardas iš pensijų – į prekybos centrus. lrt.lt. https://www.lrt.lt/naujienos/verslo-pozicija/692/2742337/arunas-burinskas-milijardas-is-pensiju-i-prekybos-centrus

Donatas Brimeris. (2025, September 21). Ekonomistas Mauricas – apie antros pensijų pakopos pinigų dalybas: „Gyvensime pagirių laikotarpį“. Tv3.Lt. https://www.tv3.lt/naujiena/verslas/ekonomistas-mauricas-apie-antros-pensiju-pakopos-pinigu-dalybas-gyvensime-pagiriu-laikotarpi-n1453167

IGD. (2023, October 12). 1 pakopos pensija - IGD.lt. Investuok. Gyvenk. Džiaukis. | igd.lt. https://igd.lt/paslaugos/pensiju-pakopos/pirma-pensiju-pakopa/

Joteikaitė, J. Š. E. (2025, June 26). Seimas palaimino II pensijų pakopos pertvarką: nutarė, kada ir kaip galima pasitraukti. 15min.lt/verslas.

Kaupiančiųjų antroje pensijų pakopoje turtas perkopė 10 mlrd. eurų – Lipfa. (2018). Lipfa.lt. https://lipfa.lt/kaupianciuju-antroje-pensiju-pakopoje-turtas-perkope-10-mlrd-euru/

Limontaitė, S. (2025, November 8). II pakopos pensijų reforma: pasiimti pinigus ar tęsti kaupimą? Delfi. https://www.delfi.lt/projektai/mano-investicija/ii-pakopos-pensiju-reforma-specialistai-paaiskino-kas-naudingiau-atsiimti-pinigus-ar-taupyti-toliau-120171050

LrtLt, A. V. L. T. N. T., & Nuotr, J. S. /. L. (2025, June 1). Dalis valdančiųjų partijų lyderių nori pasitraukti iš pensijų kaupimo: pasigenda garantijų. lrt.lt. https://archyvai.lrt.lt/naujienos/verslas/4/2579589/dalis-valdanciuju-partiju-lyderiu-nori-pasitraukti-is-pensiju-kaupimo-pasigenda-garantiju

Načajienė, L. (2022, January 27). Prognozė: 2050 m. vieną Lietuvos pensininką išlaikančių dirbančiųjų sumažės daugiau nei trečdaliu. Luminor. https://www.luminor.lt/lt/naujienos/prognoze-2050-viena-lietuvos-pensininka-islaikanciu-dirbanciuju-sumazes-daugiau-nei-trecdaliu

Pensijų fondai. (n.d.). Swedbank. https://www.swedbank.lt/private/pensions?language=LIT

Pasitraukimas iš pensijų kaupimo. (n.d.). https://sodra.lt/naujienos/nuo-kitu-metusvarbus-pokyciai-pensiju-kaupime-atsiranda-galimybe-pasitraukti?lang=lt

Tv3Lt, N. P. (2025, November 8). Iš Lietuvos banko vadovo – žinia gyventojams: neskubėkite su sprendimu dėl II pakopos. tv3.lt. https://www.tv3.lt/naujiena/verslas/is-lietuvos-banko-vadovo-zinia-gyventojams-neskubekite-su-sprendimu-del-ii-pakopos-n1466177

III pakopos pensijų fondai. (n.d.). LB. https://www.lb.lt/lt/iii-pakopos-pensiju-fondai

 

Overview of Lithuania’s Upcoming Pension System Reform: What Changes in 2026?

 

ISM Student Investment Fund | November 2025 Authors: Jokūbas Bandza, Elzė K. Petrauskytė, Tadas

 

 

 

Pension pillars:

 

I pillar - state social insurance pension

    • The first pillar is a state-paid pension intended for people who have worked and lived in Lithuania for at least 15 years.
    • The size of the pension depends on the accumulated length of service, the pension points held by the person and the state indicators in force at that time.
    • Typically this pillar makes up around 30% of former income.

 

II pillar - supplementary pension accumulation

    • The second pillar is voluntary and supplementary accumulation for old age in pension funds that are managed by pension accumulation companies.
    • Contributions consist of two parts:
      • the contribution from salary (3%),
    • the state incentive contribution (1.5%).
    • On average this pillar can ensure about 45% of former income.

 

III pillar - individual accumulation

    • The third pillar is completely voluntary. One can accumulate there personally, and contributions can also be paid by the employer.
    • III pillar pension funds are managed by pension fund managers. A person chooses the level of risk by choosing a fund.
    • An important advantage: if there are no more than 5 years left until retirement and the contract has been in force for at least 5 years, the payments are not taxed with 15% personal income tax.

 

 

Changes:

 

    • Enrolment:
      • From 2026-01-01 automatic enrolment into the II pillar will be abolished. People will have to make their own decision whether they want to accumulate.
    • Exit:
      • From 2026 January 1 to 2027 December 31 a transitional period will apply during which all participants of the II pillar will be able to voluntarily exit it.
      • The following will return to Sodra:
        • the state incentive contribution (paid since 2013),
        • the earlier part of Sodra contributions (until 2019).
        • these funds will be converted into pension points and will increase the future state pension.
    • The following will be transferred to the person:
      • personal contributions,
      • investment return.
      • this amount is not taxed and there are no additional deductions.

 

 

Withdrawal:

 

    • Before retirement:
      • Once in a lifetime it is possible to withdraw up to 25% of the accumulated funds, but no more than has been contributed personally. A 3% deduction is applied.
      • If there are less than 5 years left until retirement and the accumulated amount does not reach half of the mandatory annuity threshold, it is possible to withdraw everything (also with a 3% deduction).
      • If a person is seriously ill or has 70–100% incapacity for work, all funds can be paid out without deductions and without personal income tax.
    • Upon reaching retirement age:
      • If the amount does not reach the annuity threshold, the person can choose a lump sum payment or periodic payments, or to purchase an annuity.
      • If the amount exceeds the threshold, an annuity is mandatory and the part exceeding the threshold can be paid out in a lump sum.
      • For people who have reached retirement age the 3% deduction is not applied.

 

 

Opinions of experts and politicians

 

Chairman of the Board of the Bank of Lithuania Gediminas Šimkus (LB):

    • Urges not to rush in making decisions, people are given two years for consideration (Šimkus, 2025).
    • Notes that large withdrawals in the short term could slightly stimulate the economy (by about 0.5 percentage points) (Šimkus, 2025).

 

Swedbank chief economist Greta Ilekytė:

    • According to her, in the future the state pension alone may not be sufficient, due to demographic changes the number of people who can support pensioners will decrease (Ilekytė, 2025).
    • Possible future consequences: higher taxes, increased risk of poverty, higher retirement age, greater immigration or very small pensions (Ilekytė, 2025).

 

Luminor chief economist Žygimantas Mauricas:

    • Predicts that residents will withdraw about 2.5 billion euros of funds accumulated in the II pension pillar, that is about 25% (Mauricas, 2025).
    • “We will participate in a money injection party and later we will deal with the consequences, we will live in a hangover period” (Mauricas, 2025).

 

Ingrida Šimonytė (TS-LKD):

    • Says that she herself would not consider exiting, because she wants to diversify risk and save in several ways (Šimonytė, 2025).

 

Viktorija Čmilytė-Nielsen (Liberal Movement):

    • Criticises the reform by reminding of the Estonian example where most of the withdrawn funds were quickly spent and people did not choose alternative investing, thereby harming their long-term financial situation (Čmilytė-Nielsen, 2025).

 

Simonas Gentvilas (Liberal Movement):

    • States that the new reform is harmful to the private pension accumulation system (Gentvilas, 2025).

 

Inga Ruginienė (LSDP):

    • Defends the reform, in her words greater flexibility will increase trust and will encourage people to accumulate voluntarily (Ruginienė, 2025).

 

Remigijus Žemaitaitis (Nemuno aušra):

    • Openly says that he does not trust pension funds and, if he could, would abolish them altogether (Žemaitaitis, 2025).

 

 

Summary

 

Mandatory pension accumulation in the II pillar is a complex and highly politically charged issue that has huge implications for the country’s economy. With continuously declining birth rates and population in Lithuania, in 2022 there were about 3.1 working people per one person of retirement age, and by 2050 this number may shrink even to 1.8 (Načajienė, 2022). Some welcome the liberal reform that encourages taking more personal responsibility and freedom of choice when saving for retirement, others see disproportionate risk and possible negative consequences of the reform for the country’s economy. Both sides of the political discourse are engaged, the Social Democratic Party together with the ruling coalition are implementing their electoral promises, while the current opposition is usually inclined to represent business interests. Based on the data of the Lithuanian Investment and Pension Funds Association (LIPFA), more than 10 billion euros have been accumulated in II pillar pension funds (“Kaupiančiųjų antroje pensijų pakopoje turtas perkopė 10 mlrd. eurų”, 2025), and direct investments into shares of Lithuanian companies make up about 1.5% (“Būsimų pensininkų lėšos vis gausiau investuojamos Lietuvoje”, 2025). According to LIPFA board member P. Kabelis (2025), over the past several years Lithuanian pension funds often acquired more than 10 or even 20% of intensively placed bond issues of Lithuanian companies. If residents withdraw part of the funds invested by pension funds, economic growth may slow down. Also, inconsistent government decisions create the impression of an unreliable investment environment for both domestic and foreign investors. Forecasts that residents will rush to withdraw their II pillar savings are strengthened by the very limited two-year opportunity window. A huge amount of money entering the country’s economy without real created added value will stimulate short-term private consumption. It is predicted that due to sharply increased consumption inflation will jump, therefore already around 2028 the government may have to increase consumption taxes and or the Bank of Lithuania may have to raise base interest rates (Mauricas, 2025). These changes are very relevant for our fund and for Lithuanian investors. If residents simply spend the pension fund money they withdraw instead of investing it, the capital directed to Lithuanian financial markets and the economy will decrease. The likely deterioration of the economic situation would only increase this effect. This could lead to a contraction of capital available to funds, a worsening Lithuanian investment climate and slower economic growth. Long-term motivation to accumulate may weaken and it may become more difficult for funds to plan their strategies.

 

References

 

Būsimų pensininkų lėšos vis gausiau investuojamos Lietuvoje – Lipfa. (2018). Lipfa.lt. https://lipfa.lt/busimu-pensininku-lesos-vis-gausiau-investuojamos-lietuvoje/

Burinskas, A., & Nuotr, A. A. (2025, November 14). Arūnas Burinskas. Milijardas iš pensijų – į prekybos centrus. lrt.lt. https://www.lrt.lt/naujienos/verslo-pozicija/692/2742337/arunas-burinskas-milijardas-is-pensiju-i-prekybos-centrus

Donatas Brimeris. (2025, September 21). Ekonomistas Mauricas – apie antros pensijų pakopos pinigų dalybas: „Gyvensime pagirių laikotarpį“. Tv3.Lt. https://www.tv3.lt/naujiena/verslas/ekonomistas-mauricas-apie-antros-pensiju-pakopos-pinigu-dalybas-gyvensime-pagiriu-laikotarpi-n1453167

IGD. (2023, October 12). 1 pakopos pensija - IGD.lt. Investuok. Gyvenk. Džiaukis. | igd.lt. https://igd.lt/paslaugos/pensiju-pakopos/pirma-pensiju-pakopa/

Joteikaitė, J. Š. E. (2025, June 26). Seimas palaimino II pensijų pakopos pertvarką: nutarė, kada ir kaip galima pasitraukti. 15min.lt/verslas.

Kaupiančiųjų antroje pensijų pakopoje turtas perkopė 10 mlrd. eurų – Lipfa. (2018). Lipfa.lt. https://lipfa.lt/kaupianciuju-antroje-pensiju-pakopoje-turtas-perkope-10-mlrd-euru/

Limontaitė, S. (2025, November 8). II pakopos pensijų reforma: pasiimti pinigus ar tęsti kaupimą? Delfi. https://www.delfi.lt/projektai/mano-investicija/ii-pakopos-pensiju-reforma-specialistai-paaiskino-kas-naudingiau-atsiimti-pinigus-ar-taupyti-toliau-120171050

LrtLt, A. V. L. T. N. T., & Nuotr, J. S. /. L. (2025, June 1). Dalis valdančiųjų partijų lyderių nori pasitraukti iš pensijų kaupimo: pasigenda garantijų. lrt.lt. https://archyvai.lrt.lt/naujienos/verslas/4/2579589/dalis-valdanciuju-partiju-lyderiu-nori-pasitraukti-is-pensiju-kaupimo-pasigenda-garantiju

Načajienė, L. (2022, January 27). Prognozė: 2050 m. vieną Lietuvos pensininką išlaikančių dirbančiųjų sumažės daugiau nei trečdaliu. Luminor. https://www.luminor.lt/lt/naujienos/prognoze-2050-viena-lietuvos-pensininka-islaikanciu-dirbanciuju-sumazes-daugiau-nei-trecdaliu

Pensijų fondai. (n.d.). Swedbank. https://www.swedbank.lt/private/pensions?language=LIT

Pasitraukimas iš pensijų kaupimo. (n.d.). https://sodra.lt/naujienos/nuo-kitu-metusvarbus-pokyciai-pensiju-kaupime-atsiranda-galimybe-pasitraukti?lang=lt

Tv3Lt, N. P. (2025, November 8). Iš Lietuvos banko vadovo – žinia gyventojams: neskubėkite su sprendimu dėl II pakopos. tv3.lt. https://www.tv3.lt/naujiena/verslas/is-lietuvos-banko-vadovo-zinia-gyventojams-neskubekite-su-sprendimu-del-ii-pakopos-n1466177

III pakopos pensijų fondai. (n.d.). LB. https://www.lb.lt/lt/iii-pakopos-pensiju-fondai