3-rd Tier – Voluntary Private Pension Scheme
The 3rd tier of the pension system – private voluntary pension scheme – was launched on July 1998. The 3rd tier stipulates the free choice of any person to create additional savings for their pension by paying contributions into the private pension funds.
A private pension fund is a licensed financial company, which is accepting the resources paid by the person itself or the resources paid for their benefit and organize management of these funds in order to ensure money savings for their old age.
The main task of the private pension fund is to ensure payment of accumulated pensions to the retired employees, who have made regular contributions to the pension fund.
There are two types of private pension funds functioning in Latvia – closed and open:
- Employees of a company or organisation can become the participants of a closed pension fund, if the fund is established by these companies or organizations,
- Any natural person can become a participant of an open pension fund either directly or via his employer.
Open pension funds can be established by the banks and insurance companies.
Funds accumulated in the pension funds are invested mainly into the stock and fixed income securities market.