Social insurance

In Lithuania, the state social insurance is the major part of the system of social security. The key aim of the system of social security is to guarantee revenues for the insured in the event of the loss of working capacity in the result of a disease, maternity, old age, disability and in other cases specified in the Law on the State Social Insurance. The State social insurance, as well as social security, is based on the fundamental principles of universality, solidarity and other principles. From the very beginning, the system of social insurance had to be independent. This manifested in the separation of the social insurance budget from the state budget and the development of a tripartite the state social insurance management system. 

The financial sustainability of social insurance benefits is one of the key issues when making decisions with regard to the further development of social insurance. Forecasted ageing, interests of separate social groups, different ideologies and different social policy measures applied in other countries have encouraged and still encourage politicians, representatives of financial institutions, scientists, residents and other interested groups or persons to constantly raise the issue of sustainability of the financial system of social insurance, analyse possibilities of  this system for optimum implementation of obligations.

The history of independent Lithuania has witnessed several crises in the system of social insurance, when the system of social insurance was not capable of performing its obligations for a certain period of time. The disability to perform its obligations, i.e. to balance the monetary flows of the budget, is determined by a negative impact of macroeconomic factors or too many obligations (political risk aspect). Therefore, the year of 2013, as well as the preceding several years, may be called a period of regular savings and new challenges, since the country is still facing economic and financial outcomes of the financial crisis, which influence the State Social Insurance Fund budget (hereinafter referred to as SODRA budget), resulting subsequently in the deficit of the budget. 

The expenses of the SODRA budget have been exceeding its revenues for the seventh year in the row taking into consideration the forecasts of the SODRA budget revenues and expenses in 2014. This means that a share of pensions and other benefits are annually paid from borrowed funds.

Since 1st January 2013, a new procedure for calculating pensions came into effect. Pursuant to this procedure, the supplementary part of the state social insurance pension is calculated according to the whole insured period of the person and his insured income since 1st January 1994. Upon a person’s request, his pension may be awarded and calculated in line with the previous procedure with regard to his salary received in the period from 1st January 1984 to 31 December 1993. This procedure allows a person to choose the most suitable method of pension calculation and the amount of the pension increases, respectively. These measures influence the increase of the average old-age pension. According to the data of the State Social Insurance Fund Board under the Ministry of Social Security and Labour (hereinafter referred to as SODRA), the average old-age pension increased from 816.2 LTL~236,39€ (December 2012) to 862.42~249,77€ (September 2014). 

Social insurance is a service of regular collection of funds, which is also used to pay benefits, and this usually does not depend on the amount of contributions made, since benefits are awarded if the specified requirements are  met. This mechanism is more typical for social assistance system and some other benefits (in kind) which are paid from the state budget. However, it would be expedient to purify the basic principles in the system of the state social insurance. On one hand, the amount of some state social insurance benefits are more related to a person’s current or past salary, but on the other hand, some state social insurance benefits are not related to this kind of salary. However, exceptional privileges and rights for separate social groups or representatives of certain professions emerged in the system of the state social insurance.

The system of social security remains the field mostly striving for reforms and specific actions, therefore, a more sustainable Lithuanian social model covering the increase of employment, improvement of the regulation of labour relations and increase of the sustainability of social insurance is being developed. It is planned to implement project by using the support of the European Union structural funds. This method provides possibility to perform qualitative research by attracting not only Lithuanian scientists and experts, but also foreign researchers and experts, including social partners.

The key problems which encourage the development of a new social model of Lithuania are: the current legal regulation in the field of pensions does not allow ensuring durable financial sustainability of the pensions system; and benefits  do not efficiently reflect people’s contributions to this system, what, in turn, means insufficient adequacy of benefits. Economic development requires far more flexible labour relations, which would influence the establishment of new vacancies, contribute to employment reduction, youth employment, reduce illegal work or avoidance to register actual working time and modernise the labour market. 

The evaluation of the flexibility of labour relations means the evaluation of flexibility of the working time, complexity of employment and dismissal costs. In Lithuania, the regulation of the working time has received very unfavourable evaluation. Low level of labour force activity, shortage of qualified workers, inconsistency of the demand and supply of skills, which is further increased by high level of emigration, are the most important and concern-provoking problems, the variants of solutions to which should be offered not only for a medium period, but also for a longer perspective.

It is expected that the results of the developed model will allow responsible institutions to perform a more qualitative state’s strategic economy policy for a longer period. This way, the complex of these solutions will have a positive impact on the system of state social insurance, which will become more integrated and solidary, and the model of social insurance will become more transparent and sustainable. 

Markas Abramovicius

[artigo de opinião produzido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3º ano do curso de Economia (1º ciclo) da EEG/UMinho]