Opinion by Andrius Barštys, Chairman of the Board at SBA Group’s Investment Management Company Capitalica Asset Management
While countries like Poland and the United Kingdom are ramping up their investment expenditures, Lithuania’s pension funds are distributing billions to citizens in an effort to provide short-term satisfaction. In other words, instead of investing in the economic growth of our own country, we are prioritizing “bread and circuses.” Why are we reluctant to become the economic growth leader of the entire region?
Currently, out of the €9.1 billion managed by Lithuania’s second-pillar pension funds, only €156.6 million (1.72%) is invested in collective investment undertakings and merely €78.3 million (0.86%) in local stocks. In total, just a meager 2.57% is invested domestically.
The reluctance to invest in Lithuanian businesses that are building the country’s dynamic and innovative future is misguided—especially in today’s geopolitical context, where all EU countries are searching for ways to increase defense budgets and fund other critical sectors. This shift in priorities is understandable. As the recent Munich Security Conference highlighted, words alone are no longer enough for the U.S. to consider European nations as reliable partners.
Pension fund investments could serve as Lithuania’s key to success, security, and leadership in the region. If a larger share of accumulated funds were directed toward Lithuanian businesses, enterprise expansion, and strategic funds, it would strengthen domestic capital, boost innovation, and create more jobs. Over time, this would increase budget revenues, which could be allocated not only to national defense but also to other vital areas such as infrastructure, energy, and science.
Speaking Different Languages
The main challenge is that Lithuanian politicians and pension fund managers must start speaking the same language. Currently, this is not the case. Communication is failing.
Politicians, when looking at pension funds, unfortunately still see them primarily as a potential budget resource—and as a tool to provide voters, especially those from socially vulnerable groups, with the much-desired “bread and circuses.”
At the end of January, the Ministry of Social Security and Labor proposed changes to improve the second-pillar pension system. According to the ministry’s press release, these changes aim to “increase the system’s attractiveness and flexibility”—allowing people to exit the system at any time, suspend contributions, or withdraw up to 25% of their accumulated pension savings.
But what will be the long-term cost of this? By focusing on short-term needs, we are sacrificing Lithuania’s chances to grow and strengthen as a regional leader. Moreover, these changes to the second-pillar pension system would reduce financial security in old age, particularly for low- and middle-income earners—who currently make up 65% of the population.
Additionally, we must remember that short-term spending sprees always leave budget gaps that eventually need to be filled. More often than not, this is done through tax increases or the introduction of new taxes—which, once again, will likely hit low- and middle-income earners the hardest.
What Should Be Done?
The solution is simple. If pension funds dared to invest more in Lithuanian companies and funds, politicians would have fewer reasons to divert these resources for short-term gains. Instead, pension fund capital could directly contribute to Lithuania’s economic growth.
We have a unique opportunity to become the leading economy in our region. Let’s not waste it.
