Since July 2001 there is a three tier pension system in Latvia, it includes the 1st tier (state compulsory unfunded pension scheme), the 2nd tier (state funded pension scheme) and the 3rd tier (private voluntary pension scheme).
The underlying principle of the system is: the larger the contributions made today are, the larger the pension will be tomorrow. Simultaneous existence of all the three pension tiers ensures the stability of the system, because it reduces the eventual demographic or financial risk for each of the tears.
All persons making social insurance contributions are involved in the 1st tier. Paid contributions are used for payment of old age pensions to the existing generation of pensioners.
Social insurance contributions of those who participate in the 2nd pension tier through chosen fund managers are invested into the financial market and saved for the pension of the specific contributor.
The third pension tier ensures the possibility for every individual according to his free choice to create additional savings for his pension in the private pension funds.
The task of the SSIA is to ensure functioning of the 1st and 2nd tier pension schemes, i.e., register the socially insured persons and their contributions into the personal social insurance account, administer the contributions of the participants of the 2nd tier pension scheme as well as to perform pension payment out of the resources accumulated from the social insurance contributions made by the employers and employees.