Lithuania's Pension Annuity Fund Surpasses Targets, Eyes Faster Payout Growth

Key facts

• Pension Annuity Fund assets reached €84 million at end of Q1 2025, up 27% from €66 million a year earlier.
• Only 115 participants purchased annuities in Q1, a 43% drop from 206 in the same period last year.
• Total contributions transferred to the fund in Q1 were €2.25 million, down 29% from €3.19 million a year ago.
• The fund's assets exceed its liabilities by 20%, ensuring financial stability.
• The fund's board recommended raising the Growth Portfolio target return from 75% to 100%.
• The Growth Portfolio fell 0.63% in Q1 due to Middle East conflict and market volatility, but 3-year average annual return stands at 12.44% and 5-year at 9.23%.
• The Bond Portfolio yields approximately 3% with securities held to maturity.
• Average standard pension annuity is €78 per month, with a maximum payout of €365.

Fund Surplus and Stability

Lithuania's Pension Annuity Fund has emerged from the first quarter of 2025 in a stronger-than-expected financial position, with total assets reaching nearly €84 million — a 27% increase from €66 million a year earlier. The fund's assets now exceed its obligations to beneficiaries by a fifth, a cushion that officials say guarantees stability even amid ongoing pension system reforms and heightened financial market volatility. Despite a sharp decline in new annuity purchases — only 115 participants bought annuities in Q1, down 43% from 206 in the same period last year — the number of people completing their savings phase who actually acquired an annuity exceeded projections. The drop in new purchases is attributed to a 55% increase in the mandatory annuity threshold, which rose from €10,800 to €16,800 on January 1, 2025.

Board Decision to Raise Target Return

After reviewing the fund's financial sustainability, risk management measures, investment strategy, and outlook, the Pension Annuity Fund board recommended in April increasing the Growth Portfolio's target return from 75% to 100%. The decision is designed to enable consistent indexation of annuity payouts, aiming for annual growth of at least 3%. This move reflects confidence in the fund's ability to generate higher returns without endangering its solvency. The fund's investment performance over longer horizons supports this optimism: despite a 0.63% decline in the Growth Portfolio during Q1 — driven by the conflict in the Middle East and market fluctuations — the three-year average annual return stands at 12.44%, and the five-year average at 9.23%. The Bond Portfolio, where securities are held to maturity, yields approximately 3%.

How the Fund Differs from Regular Pension Funds

A key structural feature sets the Pension Annuity Fund apart from standard pension funds that pay periodic benefits. In regular funds, investment risk is borne by the participants; in the annuity fund, all investment risk is assumed by Sodra, Lithuania's state social insurance agency. This means that annuity recipients never see their payouts decrease, and increases can be funded from the fund's investment profits. "The essential difference from pension funds paying periodic benefits is that in those funds, the investment risk falls on participants, while in the Pension Annuity Fund, all investment risk is assumed by Sodra," said Daiva Gerulytė, head of Sodra's Pension Annuity Department. "Because of this, annuity recipients' payouts do not decrease and can be increased from the fund's earned profit."

Current Payouts and Participant Numbers

As of the end of Q1, approximately 5,000 people are receiving annuity payments from the fund. The average standard pension annuity is €78 per month, while the maximum payout reaches €365. These figures underscore the fund's role in providing a steady income stream for retirees who have opted for lifetime annuities. The mandatory annuity threshold was raised from €10,800 to €16,800 at the start of 2025, while the maximum threshold remained unchanged at €83,900. This adjustment explains the reduced number of new annuity purchases, as fewer savers now cross the mandatory purchase trigger.

Background and Administration

Sodra has been administering the Pension Annuity Fund since July 2020, taking over responsibility for managing the pooled contributions of participants who choose lifetime annuities upon retirement. The fund's design aims to provide predictable, inflation-protected income for life, with the state absorbing investment risks to shield retirees from market downturns. The fund's financial health is closely watched as Lithuania continues to reform its second-pillar pension system, which combines mandatory contributions with individual savings accounts. The annuity fund serves as the final stage for those who opt for guaranteed lifetime payouts rather than lump-sum withdrawals or phased withdrawals.

Outlook: Faster Payout Growth Ahead

With the board's recommendation to raise the target return, the fund is positioning itself for more rapid payout increases. The 3% annual growth target, if achieved, would meaningfully improve real incomes for annuity recipients over time, especially in an environment where inflation has eroded purchasing power. However, the fund's ability to deliver on this promise depends on continued investment performance and the stability of financial markets. The Q1 dip in the Growth Portfolio serves as a reminder that short-term volatility remains a risk. Nevertheless, the fund's strong capital buffer and long-term track record provide a solid foundation for the planned acceleration in benefit indexation.

The bottom line

• The Pension Annuity Fund's assets reached €84 million in Q1 2025, exceeding liabilities by 20% and outperforming projections.
• New annuity purchases fell 43% year-on-year due to a 55% increase in the mandatory annuity threshold, but actual uptake exceeded expectations.
• The fund's board recommended raising the Growth Portfolio target return to 100% to enable at least 3% annual payout growth.
• Sodra assumes all investment risk in the annuity fund, ensuring payouts never decrease and can be increased from profits.
• The Growth Portfolio posted a 0.63% quarterly loss but delivered 12.44% average annual return over three years and 9.23% over five years.
• About 5,000 people currently receive annuities, with average monthly payout of €78 and maximum of €365.