Last year, US-based financial speculators siphoned almost 569 million euros from Latvia in exchange for a couple dozen million euros of real money and stories about the successful speculation with shares of all Latvians on the New York Stock Exchange.
Not literally everyone, but all people working in Latvia (paying taxes) and indirectly their family members have been made stock speculators by force. Meaning, involved in the second tier of the state pension system. The money collected in it is not diverted to current retirees but returned to financial speculators so that they invest the money somewhere and later return it with interest. In this way, most of the 568.88 million euros that the Latvian State Revenue Service (SRS) collected for the second level of pensions were withdrawn from the Latvian economy last year. Investments in Latvia are not prohibited but limited both by legal norms and economic conditions. In return, Latvia has received 20-30 million euros, distributed among the state and pensioners who are also entitled to money from the second pillar of pensions. This benefit is not accurately listed at all.
The return of money from investments to the enjoyment of the fruits of their labour is expressed by the State Social Insurance Agency (SSIA) with the closed second-tier pension savings accounts. Last year, in the closed accounts there were 97.2 million euros for people of retirement age and 12.1 million euros for people who have not lived to see retirement age.
The Latvian state has received the majority of the savings of the dead. Yes, the state has given the right to bequeath the second tier of pension savings, but people are lazy or reluctant to think about their death, so most of the money goes to the state. On the other hand, most of the money in closed pension accounts is only gradually paid out to pensioners for the rest of their lives. In this case, too, the state has given people the opportunity to manipulate their money - either to add the accumulated capital to the first level of the pension and calculate one pension, which will be paid by the SSIA once a month, or to conclude a lifetime pension insurance contract with an insurance company.
Only the money that has reached the deadline for payment to pensioners enters the state circulation. If the duration of receiving a pension were rounded to 15 years, 97/15 = 6.5 million euros of the 97 million accumulated money last year should be paid out. The regular payouts to people already retired in previous years must be added to this amount and the money belonging to the state must be taken into account. Thus, the total amount could be around 20-30 million euros. This is clearly small compared to Latvia's contributions, as second-tier pension savings in Latvia have been established for a relatively short time. Latvia is still at the lower levels of the banal money investment pyramid with hopes that new participants will join in this global pyramid. Latvia joined this pyramid in 2001, as it was a prerequisite for negotiations on the country's accession to the European Union.
The official terminology excludes talk of the pension system as a pyramid that will only exist while it can find new members. For example, if there were countries that would still be willing and able to join the EU.
Formal reports on the returns of pension funds should suffice. These days, the pension fund operational reporting portal manapensija.lv confirms that practically all active pension plans during the last year (daily from April to April, etc.) have provided 15-25% return on investments, balanced plans - 10-15% return and conservative plans - 2-5% return. In the long run, however, this return is not so bright. There are not too many active pension plans in Latvia that have been operating for 15 years. Of these, SEB European plan can be proud of the highest return at 19.1% these days, although its annual return over a 15 year period is only around 3.3% on average. This, on the other hand, is a consolation to those pension savers whose money, by their will or accident, has been placed in conservative plans. Their return over a 15-year period differed from the return of active plans not by tens of percents, but by tenths of a percent.
Last year, compared to other years, stands out the most in terms of stock returns. But wasn't last year the Covid-19 year? Yes, it was and there was a decline in gross domestic product around the world. How is it possible to increase the value of securities if the companies and countries that issued the securities did badly?
Last year passed and this year continues with returns based on rising stock prices and losses caused by negative government bonds. The return on shares is explained by the risk that listed companies may also fail, as can be confirmed by the shareholders of Liepājas metalurgs and other listed companies here in Latvia. The lack of returns of government bonds is explained by their reliability, because, for example, the Latvian state will be the last thing to fail in Latvia. Therefore, it was originally mandatory for pension funds to invest money in both shares and bonds. Pension plans differed in the permitted proportions between shares and bonds, with active plans being those where the proportion of shares could reach up to half of the assets. After that, the bankers requested permission to set the bar at 75% and now also 100% for the active pension plans registered in Latvia, although these 100% share plans have not yet started operating. In other words, bankers are 100% sure that they will never again buy shares of any company like Liepājas metalurgs.
Where do bankers get this belief about the value of shares - about the growing value of shares? From the economic crisis of 2008 or, more precisely, from the method of overcoming it in the United States, which has now taken been over in the EU and in many parts of the world. In other words, it is the belief that speculators, including pension funds, will be able to sell the shares of any company that has actually gone bankrupt to the central bank precisely because the company has gone bankrupt. This practice was introduced by the US Federal Reserve and is being continued by both the European Central Bank and such banks in China and Japan. In this case, private bankers are only intermediaries who package corporate shares for sale to central banks and return the money printed by the states to pensioners. If countries were allowed to print money for an immediate return to institutions such as the SSIA in Latvia, then the measure would actually cost thousands of times cheaper than it costs now. For example, the SSIA report on the second level of pensions in 2019 (last year's report is not yet available) indicates exactly 20,501,382 euros, which pension fund managers have paid out for themselves. Thus, bankers fished out from the second pillar of pensions about the same amount as they returned to pensioners and the state. They cannot be overworked from returning the money received from the SRS to the SSIA. In earlier years, bankers took about 40 million euros a year from pensioners' money, for which they received not only a reprimand from the Latvian government but also a ceiling on administrative expenses.
In general, no significant changes in the management of the second pillar of pensions are possible, as Latvia must fulfill its international obligations, which it has undertaken upon joining the investment pyramid. The State of Latvia is no different from any member of such pyramids, which is strongly threatened that failure to make further investments will be punished by the cancellation of investments already made. Latvia has now put four and a half billion euros at stake.
Latvia could get this money back in two cases. Ideally, the pyramid would involve new members (countries) who would be willing to pay more money than they would get back for many years to come. Latvia is still in such a situation. From Latvia's point of view, Russia seems to be a very logical candidate for our replacement in the lower levels of the pension pyramid, with or without the division of the current state. It would be nice if the Russian Revenue Service started collecting money from Russian residents for Latvian pensioners, just as money is now being collected in Latvia for US or German pensioners. In the worst-case scenario, Latvia will regain the nominal value of its investments when it will still be possible to buy a couple of loaves of bread for 4.5 billion euros.
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