Selected Issues Papers

Latvia has a three-pillar pension system consisting of an earnings-related public scheme, a funded mandatory pillar, and a private voluntary contributions pillar. Despite its well-designed structure, the system faces challenges in ensuring adequate retirement income and curbing old-age poverty. This paper outlines policy options to improve pension adequacy and address future pressures on pension spending, including raising revenues, reorienting and rationalizing spending, increasing the contribution rates and the returns to the mandatory defined contribution pension pillar, and strengthening incentives for higher voluntary savings for retirement. A comprehensive strategy, including active labor market policies, is also essential to address the effects of population aging and improve pension adequacy.