OREANDA-NEWS. July 29, 2014. International financial services company Allianz in its latest edition of Pension Sustainability Index (PSI) has named Latvia's pension system as the 9th most sustainable among 50 world's developed economies and the best in Eastern Europe region. Australia's pension system has been recognised as the world's most sustainable while Sweden has scored the second and New Zealand – third position. Allianz has placed Estonia's pension system in 11th spot and Lithuania is in 18th position.

Several other Scandinavian countries have secured a position among world's 10 most sustainable pension systems: Norway has been awarded with 4th place and Denmark is in 6th position. Netherlands has world's 5th most sustainable pension system, Switzerland is in the 7th place, USA – in 8th and top 10 is concluded by Canada.

Thailand, Brazil and Japan have been highlighted with the worst performance among 50 PSI countries and with highest pressure to reform. Sustainability of pension systems in these countries is challenged by dynamics of ageing, low retirement age and high sovereign debt levels.

Dace Brencena, CEO of SEB Open Pension fund: "From time to time we hear doubts about stability and sustainability of Latvia's pension system, but our business data show that the trust in Latvia's pension system is actually growing. Increasingly more people utilize it to the fullest extent by accumulating retirement capital in all three pension tiers.

The main purpose of a sustainable pension system is to ensure that people are not faced with harsh reductions of their living standards after retiring. Savings in all three pension tiers are necessary for the best results. More than 75 thousand clients have chosen SEB Open Pension Fund for this purpose and the accumulated pension capital exceeds 94 million euro. Nevertheless, if we look at it from a systemic point of view, the number of people with savings in third pension pillar is still too low."

The relatively high position of the Baltic States in the PSI is explained by the use of a 2nd and 3rd pillar pension system that supports the national 1st pillar. In addition, in both Latvia and Estonia, payments to the second pillar were increased temporarily to compensate for those payments that were missed during the economic crisis, enabling  achievement of an income at pension age that exceeds the poverty threshold and also reduces the load on the social system. In comparison with the previous PSI ranking done in 2011, Latvia and Estonia have managed to improve their position by two places and Lithuania has climbed by four spots.

The Allianz PSI study is based on the demographic information of the country, the pension system model and state financing as the model for calculating the pension sustainability index. The PSI index indicates the current state of the national pension system and the need for future reforms. The study reveals that those reforms carried out in the past twenty years have brought significant changes to the world's pension scene. Pay-As-You-Go pension systems are replaced by pre-financed schemes such as pension funds and insurance, predetermined pension schemes replaced by instalment-based pension schemes and, instead of family support structures, the use of public and formal support structures is increasing.