Lithuania's New Coalition Government Plans Pension Reforms and Anti-Inflation Measures

Lithuania's incoming coalition government, formed after the removal of the 'Nemuno aušra' party from the current coalition, has unveiled plans to reform the pension system and combat inflation through income growth and stronger social protections. The new government, expected to be led by Social Democratic Party chairman Mindaugas Sinkevičius replacing Prime Minister Inga Ruginienė, will comprise the Social Democrats, the Democratic Union 'Vardan Lietuvos', and the Lithuanian Farmers, Greens and Christian Families Union.

To address inflation, which currently exceeds 5 percent annually and significantly reduces purchasing power, the government plans to increase citizens' incomes, promote employment, and strengthen social security. The coalition agreement states: 'We will curb the impact of prices on people's lives by increasing their incomes, promoting work and strengthening social security.' The government also commits to ensuring wage growth in both the public and private sectors, reducing poverty and income inequality, and strengthening dialogue with workers and trade unions.

The pension reform agenda includes several key changes. The government plans to accelerate pension indexation, drawing on reserves accumulated by the social security fund (Sodra), which now holds billions of euros. The reform seeks to restore the connection between pension size and insurance contribution history, moving away from the current system where individuals with the minimum 15-year requirement receive the same general pension component as those with 34.5 years of contributions. Additionally, the government will review the early pension system by the end of 2026, allowing individuals who chose early retirement to receive their full pension payment once the total deductions equal the amount paid during the early retirement period.

Currently, early retirement is available only within five years of reaching pension age, with calculations reduced by 0.32 percent per month. The reforms aim to create incentives for work and income growth while maintaining support for vulnerable populations, with the principle that working individuals should not be in a worse financial position than those not working.