In Latvia, the amount of pensions is reviewed every autumn – on October 1 – by indexing pensions. It is determined by the Law “On State Pensions”. So what is pension indexation? The purpose of pension indexation is to ensure the protection of granted pensions against falling purchasing power and to ensure that their value is not lost.
Issues concerning pensions are very sensitive and not always easy to understand. Therefore, the Ministry of Welfare has prepared answers to the most frequently asked questions on this topic.
How will pensions be indexed this year?
This autumn, the amount of pensions and benefits or their parts will not increase, which does not exceed 470 euros.
This means that the full amount of the pension and compensation will be indexed, if it does not exceed 470 euros. In turn, for those pensions and benefits that are higher than 470 euros, only a part of the allocated amount will be indexed – the already mentioned 470 euros. The increase will depend on both the amount of the pension and the benefit and the applicable index. The exceptions are the politically repressed, people with group I disabilities and participants in the aftermath of the Chernobyl accident, for whom the full amount of the pension will be indexed.
How, then, is the so-called index, according to which pensions are recalculated?
It consists of the actual consumer price index (to put it simply – inflation) and a part of the percentage of real growth in insurance premiums. The amount of insurance contribution salaries is a financial concept, but, more simply, it is the sum of all the money from which social insurance contributions had to be paid during the year.
To determine the actual amount of the contribution salary changes in a particular year, the amount of contribution salaries for a particular year is attributed to the amount of contribution salaries for the previous year. This is how the changes have taken place here in the last year. Thus, an index of the amount of contribution wages or an index that characterizes the actual change in the amount of wages is obtained.
However, the effects of inflation are also present. But in order to determine the real change or real increase in the amount of the contribution salary in a given year, the effect of inflation on the contribution salary index must be excluded. To do this, in the formula for calculating the real increase in the amount of insurance contribution wages included in the regulations of the Cabinet of Ministers, the index of the amount of contribution wages is divided by the consumer price index.
This year, an index of 1.0423 will be applied to retirement, invalidity, survivors’ pensions and benefits.
However, similarly to the previous year, different indices will be applied to the indexation of old-age pensions this year, depending on the person’s accumulated insurance record. The longer the insurance record, the higher the index will be applied and the greater the increase in the old-age pension.
If the insurance period is up to 29 years, then the indexation of pensions in addition to the actual consumer price index will also take into account 50% of the real increase in insurance contribution wages, if from 30 to 39 years, as well as if the pension is granted for work harmful and severe or in harmful and particularly severe working conditions, – 60%, if from 40 to 44 years – 70%, but 45 years and more – 80%.
For people with less than 29 years of insurance, the old-age pension revision will be subject to an index of 1.0423; if the insurance period is from 30 to 39 years – the index 1.0451 will be applied; if the insurance period is from 40 to 44 years – the index will be 1.0479. On the other hand, if the insurance record is 45 years or more, the index 1.0507 will be applied.
For example, if the amount of the old-age pension is 380 euros, then for a senior with insurance experience up to 29 years from this year. the amount of the October pension will be 396.07 euros (by 16.07 euros more), if the insurance period is from 30 to 39 years – the amount of the pension will be 397.14 euros (by 17.14 euros more), if the insurance period is from 40 to 44 years – the amount of the pension will be 398.20 euros (18.20 euros higher). On the other hand, if the insurance record is 45 years or more, then the pension will increase to 399.27 euros (19.27 euros higher).
The indices also include old-age and invalidity pension supplements for one year of insurance accumulated up to 31 December 1995, applying the actual consumer price index and 50% of the real increase in the amount of insurance contributions. When indexing the premium, on 1 October 2021, the relevant index will be subject to premiums of approximately EUR 1.11 for each year of insurance until 31 December 1995 and premiums of approximately EUR 1.67 for each year of insurance until 31 December 1995, if the old-age pension has been granted until 31 December 1996 or the invalidity pension has been granted and the age required for the granting of the old-age pension has been reached by 31 December 1996.
This means that the current amount of the premium, which is currently € 1.11 and € 1.67 per year of insurance, will be revised by applying an index of 1.0423. As a result, people who received € 1.11 for each year of service accrued before the end of 1995 will continue to receive € 1.16, while those who received € 1.67 will continue to receive € 1.74.
For example, a pensioner who receives an old-age pension of 400 euros for the total length of insurance of 45 years and a supplement of 27.75 euros (for 25 working years (from 45 years) until the end of 1995), from this year. will receive an old-age pension of 420.28 euros and a pension supplement of 29 euros.
It should be noted that personal income tax may be deducted from the total amount of the pension and supplement, which reduces the amount to be paid.
How do I know how much each person’s pension will increase?
Does a pensioner have to do something himself to get his pension indexed?
No, retirees themselves have nothing to do! The indexation of pensions is provided by the State Social Insurance Agency (SSIA) and it takes place automatically – on October 1 of each year. This means that also in October this year, everyone who is entitled to a pension will receive it in the already indexed amount. And there is no need to worry about whether the SSIA will know how much will be due after the indexation of pensions. The SSIA has all the necessary data at its disposal – the recalculation takes place automatically.
Will all pensions increase as a result of indexation in the autumn?
The indexation of pensions applies to all recipients of old-age pensions, invalidity pensions, retirement pensions and survivors’ pensions to whom they have been granted or recalculated before 30 September this year.
The Ministry of Welfare