A Conceptual Proposal on the Transformation of the State Social Security System (“Sodra”)

The goal of this conceptual framework is to propose solutions on how to turn social security into a sustainable and clear system, empowering people to increase their financial capacities to fund themselves in certain critical cases. We propose to strictly separate the cases where insurance principles can be applied from cases where that is impossible, plus to apply private insurance to insurable occurrences and accumulation to all other cases. Social support must be purposeful and well-targeted, rendered only to those individuals who indeed need it.

The proposed course of the transformation:

1) Insurance principles can apply to only two types of disbursements – healthcare insurance (sickness pay included) and work injury insurance. For this reason, people must get (compulsory) insurance in private insurance establishments.

2) People should make preparations for old age individually – we propose compulsory saving in personal retirement accounts.

3) As a compromise to maternity (paternity) allowances, we suggest paying a fixed, uniform (periodic) and short-term (up to six months) payout to all recipients with children, disbursed from the national budget (the principle of a gift).

4) All other payments from “Sodra” must be provided as benefits only when the recipient’s income and property are tested. The allocation of state funds must be purposeful and well-targeted, aimed at only those individuals who are in real need, rather than according to categories or in politically selected cases.

5) Individuals who have participated in the state social insurance system for a long span of time will receive a voucher as a “redundancy pay” which will be disbursed at their retirement age; in the transitional period, “Sodra” will exist as an institution to fulfil liabilities assumed, and individuals will pay a temporary “Sodra” tax (which will gradually decrease from 10 percent to zero).

6) The transition must be carried out assuring that the existing obligations are implemented and no new obligations are assumed. This proposal was presented at a press conference “LFMI Proposes a “Sodra” Transformation” on January 22, plus in a press release “The “Sodra” Pyramid Must be Replaced with Private Accumulation and Insurance, with State Support being Rendered to the Needy Only.” LFMI’s President Rūta Vainienė also presented these proposals in a TV debate “Lithuania Live: LFMI Proposes a “Sodra” Transformation.”