Igor Buimister, Forbes, 2011.09.

It is obvious to everyone today that it is necessary to develop a culture of spending in Latvia, since as of now the country is unable to secure reliable social guarantees to its people, while the ratio of pensioners to economically active population is not changing for the better. While such problems as economical difficulties and aging of population disturb practically the whole world today, they are exacerbated in the countries of Eastern Europe by an underdeveloped culture of savings. If nowadays residents of good old Germany carefully spend every euro, refusing to take loans and saving for a rainy day, and American retirees have been living for a long time at the expense of their own personal savings only, in Latvia as well as in countries east of it the readiness and ability of people to set money aside for the future is extremely low. Discussions of the problem are taking stage today not only in Latvia, but also in Russia and Kazakhstan…

Against the European background, Latvia looks very bleak as far as the segment of private pension savings is concerned and it occupies one of the last places in the list of countries where this retirement program works. Several factors impede the development of such savings in the country. Firstly, a low level of income of the large portion of the population. Secondly, people have no confidence in the future. Economic collisions of the last several decades pushed many people to lose their faith in the possibility of any guarantees of a stable future. People do not believe the government and they do not trust managers of the pension funds, preferring to live day by day. The “capitalist” epoch of unlimited consumer possibilities made its contribution as well: after the USSR collapsed, it replaced the era of permanent deficit in the entire post-Soviet territory and offered a wide range of goods and services to people who were hungry for diversity. It is quite understandable that, driven by all these factors, the population much faster learned how to take loans versus save some money.

What is to be done to change the situation? It is a complicated question. Of course, it is absolutely necessary to raise the culture of saving in general and private pension savings in particular. But if a few individuals only will continue to encourage the society to save, whose summons to put money aside for tomorrow only cause negative reaction from the many (it is suffice to read periodicals and newspapers of last months in order to get confirmation), nothing will change. It is certainly an unpopular occupation to teach the population how to save in the country where a considerable percentage lives on minimal income. But if the state is unable to provide reasonable social guarantees, it at least must help people get ready on their own (at least those who today are still able to put some money aside) to face tomorrow. A wisely organized informational campaign about the possibilities of private savings, experience of European neighbors, and tax credits for depositors can bring first results. 

On the other hand, such type of private savings as third tier pension plan will never be attractive enough for the part of the population seeking a higher return on their investments. These economically active people, provided that they can take an equally active position in management of their funds, are quite capable of creating their own pension plan.

A pension plan is the same as playing in stock, money or commodities markets, only standardized to appeal to the mass consumer. If you are looking for something exclusive, work according to an individual plan, hand picking most appropriate investment instruments and monitoring personally the level of risks.

Of course, it is advisable to engage professionals for consulting who will help manage your investment portfolio effectively and efficiently, determine the right proportion of various investment instruments, and constantly keep their hand on the pulse of global markets. In this case, your participation in the destiny of your own savings for the future may be more active and successful, and your private pension plan more flexible, factoring in latest events in the world.