(IN)EFFECTIVENESS OF THE LATVIAN PENSION SYSTEM IN ADDRESSING THE PROBLEM OF POVERTY AMONG THE ELDERLY

Against the EU background, Latvia demonstrates extremely high rates of the at-risk-of-poverty or social exclusion among the population in older age groups 65+ and 75+, as well as the highest levels of income inequality (S80/S20) among the elderly. The country is consistently among the bottom three performers in respect of these indicators, lagging behind its neighbours in the Baltic Sea region. The authors demonstrate what specific elements of Latvian pension system make it an inappropriate instrument in poverty alleviation. In the absence of redistribution mechanisms in mandatory NDC and FDC pension pillars accompanied by relatively high tax burden on pensions, the only systemic element aimed at alleviation of poverty in the old age is the statutory minimum pension, which is not equal to the task. Delay with the introduction of the minimal income level (proclaimed in 2014) and termination of subsistence minimum calculation since 2014 have also contributed to the deterioration of the situation of the receivers of small amount pensions. Since fundamental changes in mandatory pension pillars (I and II) are hardly practicable, the solution may be found in development of the so called pillar 0 (social assistance) and pillar IV (housing programs, healthcare programs, other formal and informal forms of financial and non-financial support to the elderly), which are also drastically underdeveloped in Latvia.