Investing in Your Retirement? – You’re Investing in Lithuania’s Future

The word "investment" can mean different things to different people. For some, it relates to direct investments in stocks, for others, it means purchasing real estate, while for some, it might signify non-financial investments in future generations. The term "investment" is indeed complex and can have multiple meanings. Many people do not realize that pensions, particularly additional pension savings, are not only an investment in their future but also a significant contribution to the country's development and social and economic progress.

The Need to Increase Investments

At the beginning of this year, the Bank of Lithuania published a review of the second pension pillar, highlighting key indicators and suggesting that increasing such “investments” could enhance Lithuania's attractiveness to new businesses, boost competitiveness, and improve the quality of life for all citizens.

Currently, 778,000 residents actively participate in the second pension pillar. According to Greta Mieliauskaitė, head of the Lithuanian Private Equity and Venture Capital Association, such personal additional investments not only help individuals maintain a certain standard of living after retirement and afford global travel but also stimulate job creation, improve infrastructure, and support innovation.

"Only 50% of the working population actively participate in the second pension pillar. Greater investment flows are essential for fostering economic growth, creating jobs, and developing a competitive and innovative economy. One key factor in this process is pensions and savings, which individuals contribute to pension funds. These funds not only ensure long-term financial stability for residents but also serve as a reliable mechanism for directing investments into vital economic sectors, promoting the country's sustainable development," said Greta Mieliauskaitė, head of LT VCA.

By investing the accumulated assets in various sectors, pension funds can directly contribute to Lithuania’s economic transformation while ensuring higher returns for depositors.

Pension Funds Drive Growth in Key Sectors

A notable example of pension funds' impact is their investment in Lithuania’s financial sector. In one of the country’s banks, 18.5% of total pension fund investments—approximately €600 million—have been allocated to the information technology sector. This makes pension funds a driving force behind one of the most dynamic and high-returning economic areas. The IT sector and its solutions are known for resilience and profitability, often enhancing everyday life through artificial intelligence, robotics, and innovations that reduce CO2 emissions.

"Another example is Lithuania’s capital, Vilnius, which is set to take over the Green Capital title from Valencia, a city renowned for its technological advancements. Many people don’t realize that pension fund investments also flow into sectors that develop technologies for climate change mitigation, environmental conservation, and other sustainable solutions—transforming European capitals, including Vilnius," noted G. Mieliauskaitė.

A Thriving Lithuanian Startup Ecosystem

According to the Innovation Agency, the 2024 "Dealroom" report states that the value of Lithuania’s startup ecosystem has reached €13.7 billion, reflecting a sevenfold increase since 2018. Currently, the ecosystem comprises nearly 600 startups, many of which have successfully attracted local and international investments. Additionally, the information and communications technology sector is expected to account for 10% of the country's exports by 2030.

Pension funds play an indirect yet crucial role in fostering this ecosystem. By investing in venture capital and private equity funds, pension savings are channeled into business creation and expansion, including startups. This provides the financial resources necessary for innovation, scaling, and market expansion. It is worth noting that venture and private equity funds operating in Lithuania have already invested in more than 223 companies, employing 16,000 people.

This positive cycle benefits not only entrepreneurs but also the broader economy: new jobs are created, exports increase, and Lithuania strengthens its reputation as an innovation hub.

Investment Mechanism: From Pension Funds to Startups

According to Greta Mieliauskaitė, understanding this type of investment mechanism is straightforward. "To put it simply: pension funds invest in venture capital and private equity funds, which in turn, using various strategies, finance businesses and startups. The value created by these investments is evident," she explained.

The investment flow from pension funds to businesses follows a clear structure. Pension funds allocate part of their capital to private equity and venture capital funds, which specialize in identifying and supporting high-potential companies. These funds then invest in startups and growth-stage companies, providing the necessary capital for innovation and expansion. The returns from these investments flow back into pension funds, benefiting depositors while also driving economic growth.

This mechanism creates a symbiotic relationship: pension funds benefit from startups' rapid growth potential, while startups receive the capital needed to thrive. Additionally, this model supports a diversified investment strategy, reduces risk, and enhances the economy's overall resilience.

The Importance of a Strategic Approach

The Lithuanian Private Equity and Venture Capital Association acknowledges that a systematic and consistent pension system can be a key component of economic development. When more citizens actively contribute to their pension savings, the benefits extend far beyond individual financial security.

The supplementary pension savings system, which has been operating in Lithuania for 20 years, has the potential to establish consistency and sustainability, positioning itself as a stable tool for securing a dignified retirement while also driving the country’s economic growth.

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