Benefits of pension accumulation for companies

Pension accumulation for employees in pension funds is a means companies all around the world often use to foster employee loyalty. It’s a way not just to ensure a bigger pension in old age, but also to motivate those who work best.

A full 50% of Lithuanian residents would be motivated by employer contributions to a supplementary voluntary pension accumulation (3rd pillar) pension fund, according to a representative survey. Some companies in Lithuania already use this type of incentive, thus demonstrating concern not just for their employees’ present, but also for their future.

A long-term and practical incentive

This type of employee incentive enables long-term motivation, since a contribution an employer makes to a pension fund adds to the employee’s accumulating supplementary pension. It’s also a practical way for companies to motivate employees.

Calculations show that, allocating the same amount of money for an employee incentive and considering all the costs, a pension fund contribution counting from 2019 could be as much as 68% bigger than the after-tax amount of a salary bonus. That’s because a pension contribution, unlike a bonus, isn’t taxed as long as it doesn’t exceed a quarter of the employee’s pre-tax salary for the year.

* The advantage arises because taxes levied when paying a wage bonus are not levied on pension fund contributions. These tax benefits apply when pension fund contributions do not exceed 25% of an employee’s pretax employment-related income. Calculations assume no tax exempt amount ("NPD"). The calculations are based on the taxes, which came into force from 2019.

If an employer makes contributions to an employee’s chosen 3rd pillar pension fund and they do not exceed 25% of the employee’s annual employment-related income, according to the taxes system, which is in force until 2019, the employer is not required to pay the social security tax on that amount (31.18%) while the employee does not have to pay the personal income tax (15%) or the health and pension social insurance contributions (which total 9%). From 2019, if an employer makes contributions to an employee’s pension fund, these contributions are exempt from the following taxes: personal income tax (20%), employer’s social insurance contribution (1.47%) and employee’s social insurance contribution (19.5%).

Thus contributing to a pension fund lets an employer allocate a much bigger incentive amount in terms of what they add to an employee’s supplementary pension accumulation

All employees are eligible

Under the existing pension accumulation system, all residents of the country can accumulate in 3rd pillar pension funds regardless of whether they accumulate in the 2nd pillar or have insured income. There are no limits for this pillar on the number of pension funds or accumulation companies, and it is the individual who decides on the size, frequency and periodicity of contributions and the number of chosen funds.

Accumulation in 3rd pillar funds is recommended in order to approach 80% of one’s previous income level during retirement, assuming accumulation in the 2nd pillar also.

If money is withdrawn from a 3rd pillar pension fund sooner than 5 years after the start of accumulation and before reaching the designated age, a 15% (from 2019 - 20 %) personal income tax applies. There are also fees that apply for accumulating in pension funds.

INVL loyalty programmes for employers

How to open 3rd pillar pension fund accumulation agreement

We encourage you to invite your employees to conclude agreements with INVL Asset Management. After reviewing your employees’ financial situation, we’ll prepare a personal pension accumulation plan for each of them and help calculate the recommended contribution size. If you want to discuss these opportunities, call us at 8 700 55 959 or write to us at [email protected].

Occupational pension funds

Companies can also accumulate for employees in 3rd pillar pension funds establishing the occupational pension funds. In this case the company can itself select the fund manager and so play a role in managing the pension funds. Both when establishing occupational pension funds and when transferring contributions to employee accounts at private pension funds, companies can make use of personal income tax exemptions. According to calculations by INVL Asset Management, this can be relevant for companies with more than 2,000 employees.

The personal income tax exemption for companies accumulating for employees in pension funds

Contributions to occupational pension funds and 3rd pillar pension funds are not subject to any taxes if the legal requirements are met. According to Lithuania’s Law on Personal Income Tax (article 17 section 1 items 14-141), pension contributions paid by an employer on behalf of an employee into a pension account in a pension fund are regarded as untaxed income in kind, so long as during the tax period the contributions do not exceed 25 per cent of the employment compensation due to the employee for the period.

Following a 2010 change in the definition of ‘income in kind’, these contributions on behalf of employees are not subject to social insurance tax either (Law on Personal Income Tax article 2 section 15 item 9; Law on State Social Insurance article 11 section 1 item 19) and, at the same time, employers are granted a profit tax exemption (Law on Corporate Income Tax article 17 section 1; article 17 section 2 item 8).

More information

If you have questions or want to know more about pension funds, call us at +370 700 55959 or write to us at [email protected].

Links to useful facts and more information about pension accumulation activities:

As a 3rd pillar pension fund participant, you will have to pay the fees specified in the rules of the selected pension fund. The money accumulated in a pension fund is invested on the basis of the investment strategy set out in the pension fund’s rules. In accumulating in pension funds, you assume the investment and investment-related risk. The value of a pension fund unit may both rise and fall. You may recover less than you invested. A pension fund’s past results do not guarantee the same results and profitability in the future. Results for a past period are not a reliable indicator of future results. When seven or fewer years remain before retirement, we recommend considering investing in a conservative investment pension fund (INVL STABILO III 58+ / INVL Stable).

Before making a decision to invest, you should individually or with the help of investment advisors assess all risks associated with investing and acquaint yourself with the pension fund’s rules, which are an integral part of the supplementary voluntary pension accumulation agreement.

A participant of a fund can choose from among the following ways for receiving pension disbursements: a lump-sum pay-out (a one-time pension disbursement), partial periodic payments (conversion at regular intervals of a portion of fund units in the pension account into cash to be paid out), or the purchase of an annuity from an insurance company that provides life insurance (read more about annuities at:

All the information provided is of a promotional nature and cannot be construed as a recommendation, offer or invitation to accumulate money in pension funds operated by INVL Asset Management UAB. The information provided here cannot be the basis for any subsequently concluded agreement. Although this information of a promotional nature is based on sources considered to be reliable, INVL Asset Management UAB shall not be responsible for inaccuracies or changes in the information, or for losses that may arise when investments are based on this information.