LM proposes to introduce additional support to the old-age pension of parents with many children

The Ministry of Welfare (MOW) is proposing to introduce additional support for the old-age pension of parents with many children from the state basic budget, according to the proposals developed by the ministry, which will be reviewed by the government on Tuesday, May 7.

Currently, the law “On state pensions” stipulates that the parent or guardian of a child whose insurance experience is not less than 25 years can claim an old-age pension five years earlier. Thus, in 2023, such a parent or guardian could request an old-age pension upon reaching the age of 59 years and six months. This can be done in cases where, during the time period until the child reaches the age of 18, the person has taken care of five or more children for at least eight years or has taken care of a child with a disability who has been recognized as a child with a disability for at least eight years.

Persons who have been deprived of the right of care or guardianship do not have such rights.

All these benefits included in the scope of the state pension system are jointly financed from the social insurance contributions made by the other members of the system.

LM explains that if you claim an old-age pension before the statutory general retirement age, the amount of the pension is smaller, because the pension capital is distributed over the projected life expectancy after retirement, which in turn is higher if you retire sooner, also the length of insurance and therefore the pension capital accumulated during the working life is also smaller than if the person had continued to work and claimed the pension at the general age.

LM indicates that if parents of many children with three and four children are provided with the opportunity to retire earlier from 2025, there will be a negative financial impact on the special budget – an increase in expenses for earlier payment of old-age pensions, and also, if workers leave the labor market earlier, there will be a decrease in revenues from unpaid for social insurance contributions. In addition, in order to ensure the sustainability of the special budget and not destroy the state pension system, the proposal cannot be implemented within the existing social insurance contribution rate and based on the existing basic principles.

LM invites you to take into account that in this way those who live outside of Latvia will be able to claim their pension early. However, this will also lead to dissatisfaction and unfair treatment of the rest, or the majority of the system’s participants – single parents, parents with two and one child, who will have to ensure the cost of old-age pensions for privileged pensioners, and for the special budget to be able to ensure the continuity of pension costs and the accumulated fulfillment of obligations, further raising of the retirement age for all system members will be promoted.

LM proposes to introduce additional support for the old-age pension from the basic state budget. Parents of many children with three or more children, upon retiring at the legal age, could receive a monthly allowance from the basic state budget in addition to the old-age pension for the third and each subsequent child in care. For example, for a person with three children, additional support to the old-age pension would be paid in the amount of one benefit, for a person with five children – in the amount of three benefits.

Considering that the purpose of the support is not related to covering basic needs, but as an additional motivational support for parents with many children, its amount could depend on the possibilities of the state budget. In order to assess the potential impact of such support, an assumption was made in the calculations that its amount would be equivalent to 5% of the median income, which would be revised according to its changes, explains LM.

In the assessment of the Ministry, the allowance in addition to the old-age pension for the third and each subsequent child should also be provided to the existing old-age pension recipients. In order to ensure the payment of benefits to the old age pension recipients for the third and each subsequent child, preliminary additional expenses from the state budget in 2025 and every year thereafter would be 26 million euros.

On the other hand, in order for the state to value and support every parent who has been in long-term child care, the Ministry of Health proposes to introduce state support for each month spent in the child care period, compensating for the reduction in the amount of social insurance contributions for pension insurance during child care leave. The support would be paid out of the state’s basic budget when the person retires, including under reduced conditions.

As a result of the proposed proposal, a person’s investment in child care would be “rewarded” and the reduction of social security contributions to the old-age pension would be compensated. Taking into account that women most often go on childcare leave, compensation for the time spent on childcare would mostly be paid to women, which would reduce the income inequality of seniors in terms of gender, namely the difference in the amount of the average old-age pension between men and women, according to LM.

The Ministry assumes that the benefit amount would be equivalent to 5% of the median income, which would be revised according to its changes. The “value” of one month spent caring for a child in 2025 would be a little over two euros.

LM draws attention to the fact that the compensation for the child care period is for the reduction of social insurance contributions during the child care period, and the system based on social insurance contributions was introduced from 1996. Therefore, the compensation would apply to those persons who took care of a child and were on child care leave from 1996. The financial impact of this proposal would continue to be on newly awarded old-age pensioners and on those currently retiring.

The LM has concluded that the introduction of any new guarantees and reliefs is related to the need for additional financial resources, which, given the already relatively high rate of social insurance contributions and the rapidly shrinking workforce, would not be feasible without attracting large funds from the state basic budget or raising the retirement age for all members of the system.

At the same time, the ministry believes that in the current situation it is essential to support young parents who are raising or planning to have children, thus promoting and stabilizing the demographic situation in the country. If the first child is not born in the family, it will not become a family with many children, emphasizes LM.

According to the data of the State Social Insurance Agency in October 2023, 63,000 persons or 14.5% of all registered recipients of old-age pension requested old-age pension from an earlier age. This opportunity was used the most by persons who worked in harmful and difficult working conditions – 22,527 persons, parents of a disabled child and parents of five children – 13,695 persons, persons with lifelong disabilities – 11,220 persons, and others.

In the ten months of 2023, 208 persons were granted an old-age pension under relaxed terms as persons who took care of five or more children up to the age of eight. The average amount of the old age pension granted to the mentioned persons was 414.49 euros, that is, 76% of the average amount of newly awarded old age pensions in the general case.