Pension Fund or Savings Insurance

Back in 2007, I let myself be talked into pension funds (Seesam, now Compensa) and agreed to the smallest possible amount.

In 2015 I decided to enquire (since they don't send statements themselves) what had actually accumulated. In addition to what I had paid in, over 8 years a total of EUR 35 had accumulated - that's 0.16% per year.

There is one piece of good news and two pieces of bad news.

Good News

1. For such savings you can obtain a partial personal income tax (PIT) refund (there are caps on these refunds), if: a) you have no other deductible expenses, such as medical costs; b) you earn considerably above the minimum wage or are not an employee of a micro-enterprise.

Bad News

1. If you look at the statistics, over 10 years the value of goods and services increases by approximately 100%, or 10% per year. Energy rises fastest, certain product categories the slowest. Taxes also change. For example, in 2007 there was no real estate and land tax, no car tax (~EUR 35/month if the car is registered to an LLC, etc.).
2. Upon retirement, capital gains tax - i.e. 10% - will have to be paid to the state on any additional earnings.

Conclusions

1. If you work in public or municipal employment or a large company and don't want to change anything - such contributions are for you.
2. If you're attracted by the idea of recovering x% of your PIT payments, then by re-registering your activity as a micro-enterprise you will recover a full 90% of contributions.
3. In Latvia, no investment fund guarantees that your savings won't go into the red. In Austria, for example, it is stipulated that the minimum return on pension funds cannot fall below 0.00x%. The entire (!) sum can go into the red, not only the portion paid in during a crisis. Of course, you can console yourself with the thought that crises come and go - as long as you hope to live forever.
4. The logical conclusion is that a pension fund is for saving, not for recovering PIT. In the worst-case scenario, saving so that there's at least something. In the middle scenario, so that savings keep pace with inflation. The ideal - so that savings exceed inflation.
5. It is very important with such investments to take into account the redemption terms. Even back in 2007, it seemed that no more than 5 years would pass (and that was before the crisis) before far more attractive investment opportunities would appear.