Tier 2 vs Tier 3: Conditions Explained

The second tier of pensions has been reformed several times in recent times. As the Bank of Lithuania, which performed the analysis in 2025, noticed, since 2004 this part of the pension system has been constantly changed – the size of the contributions alone has changed thirteen times in 20 years.

For example, from the very beginning, residents were allowed to choose: to pay contributions only for the first tier (for the Sodra pension) or to direct part of the Sodra contributions to private pension funds. It was then decided to increase the share of contributions transferred to private funds from 2.5 to 5.5 percent, but during the economic recession in 2009, this share was reduced to 2 percent. and was not restored.

In 2014, there was an opportunity for the participants themselves to contribute to the accumulation, as well as a state incentive, which then amounted to 1 percent. last year’s average salary.

Since 2019, it is no longer possible to transfer “Sodra” contributions to funds, the system of life cycle pension funds has come into force, which ensures that savings are made by changing the investment strategy according to the participant’s age, and automatic inclusion has appeared.

Well, in 2026, the second tier was once again reformed by abandoning restrictive rules, automatic enrollment and expanding the freedom of self-determination. In the text, we discuss how the second tier currently differs from the third.

In the standard case, the saver in the second tier can pay 3 percent every month. from your salary. However, there are no restrictions – the contribution can be increased.

If the employee’s employer decides to pay the contributions for the employee, he can take advantage of the corporate tax relief for the additional contributions.

When accumulating in the third tier, you can choose the payment you want, it is not necessary to pay it regularly, and you can also pay a different amount every month or do it not every month.

The employer can also pay contributions for the employee in the third tier. In some companies, it is treated as one of the incentives for employees.

When accumulating in the second tier, the state contributes 1.5 percent. from the previous year’s salary. It is granted as long as the employee pays the contributions himself, after stopping them, the incentive does not apply. In this case, if a person chooses to pay more, the government’s incentive does not increase.

In the third tier, the state incentive does not apply.

In the second tier, payments can be stopped an unlimited number of times, each time after 12 months. State contributions are not transferred while the payment of contributions is suspended.

When accumulating in the third tier, payments can be stopped at any time and for any period of time.

The law stipulates that taxes in the second tier cannot exceed 0.5 percent.

In the third tier, they are larger and more diverse: a management fee is applied (it ranges from 0.55 percent to 1 percent in different companies), a depository fee (from 0.055 to 0.20 percent), and there may also be other costs (from 0.2 to 0.75 percent).

In the second tier, personal income tax (PIT) relief is not available in the standard case, but it can be used if higher premiums are paid. Up to 300 euros can be recovered for additional contributions per person per year.

In the third tier, the GPM discount is valid until 2035, if the contracts were concluded until 2025, in which case up to 300 euros per year can be recovered. The discount is not valid for new contracts (2025 and after).

In the second stage, accumulation is carried out according to the life cycle fund strategy, which means that investments are made according to the person’s age: the younger the person, the more invested in shares (riskier option), as the age increases, the investments become more conservative (more is allocated to bonds). A person does not need to take any active actions, funds are assigned automatically, but he can change them.

In the third stage, a person has to choose the level of risk acceptable to him. For example, invest in an equity pension fund (riskier), balanced or safe.

It is possible to withdraw a part of the amount – your own contributions and investment gains, if you leave the second tier in 2026-2027. The remaining money – Sodra’s contributions and the state incentive – will return to the first tier and increase the Sodra’s pension, as it will be used to purchase additional accounting units. No fee (GPM or otherwise) will apply.

It will also be possible to withdraw 25% once in a lifetime. accumulated sums, but not more than the resident himself paid. In this case, 3 percent will be applied. charging on the full amount.

In the case of a serious illness, which is included in a special list, in the event of the need for palliative care or loss of 70-100%. participation, a person will be able to withdraw the entire accumulated amount at any time in his life without taxes or restrictions.

With 5 years or less before the old-age pension age, the full accumulated amount can be withdrawn for persons who have accumulated up to half of the mandatory annuity amount (in 2026, the minimum annuity is 16,785 euros, which means that half amounts to about 8,392 euros).

When accumulating in the third stage, money can be withdrawn until retirement age, but if this is done more than 5 years before it, capital gains are subject to GPM. Hence, only the difference between the amount deposited and the amount accumulated is taxed.

According to the changes that came into effect on January 1, 2026, the annual part of income not from employment relationships or relationships corresponding to their essence, not exceeding the amount of 12 VDU (about 30.8 thousand euros), is taxed at 15 percent. income tax rate.

“If such income exceeds 12 average wages, the excess part is included in the income taxed at the main income tax rates (20, 25 and 32 percent),” Rasa Virvilienė, head of the Legal Department of the State Tax Inspectorate, told Delfi earlier.

It is also worth knowing that if the resident used the aforementioned GPM benefit (deducted the paid contributions from income) and withdraws the money earlier than 5 years before retirement, the returned contributions will be taxed at 15 percent. tariff. If the benefit was not used, the returned contributions are not taxed.

You can withdraw a one-time payment if you have accumulated up to the minimum annuity amount in the second stage (in 2026 it is 16,785 euros). It is also possible to withdraw accumulated assets above the maximum annuity limit (83,926 euros in 2026).

Otherwise, you need to purchase an annuity that ensures a monthly payment. It can be standard, standard with inheritance or delayed.

If a person of retirement age continues to save, he can withdraw all the money in case of illness or need for care.

The following information is relevant for those persons who voluntarily entered into a pension annuity contract or entered into a contract for periodic pension payments before the entry into force of these changes (ie until December 31, 2025):

In the third step, the entire accumulated amount can be withdrawn at one time, no restrictions apply.

If a person died while still accumulating in the second stage, the accumulated property is inherited according to the procedure established by the Civil Code.

If the person died after concluding the benefits contract and starting to receive them, the inheritance depends on the chosen annuity. In the case of a standard annuity, the remaining funds are not inherited, but the monthly payments are more generous compared to other annuities. Benefits remain stable throughout the payment period.

In the case of an inheritance standard annuity, the heirs will be paid a one-time payment for the unpaid benefits to the recipient of the pension annuity until the age of 85 (the specified term applies to pension annuities purchased from January 1, 2026). The payouts are also stable.

In the case of a deferred pension annuity, the annuity is purchased for part of the amount accumulated in the pension fund, it is indicated on the “Sodros” page.

The remaining amount is paid out in periodic payments paid by the pension accumulation company until the person reaches the age of 85. Sodra will start paying the pension annuity when the person turns 85. The state guarantees that Sodra will pay monthly pension annuity payments for life.

The periodic benefits paid by the pension savings company in this case can both increase and decrease, they will not be the same. However, the pension annuity paid by Sodra will be stable, although its payments will be the lowest compared to other annuities.

In the third tier, the entire value is inherited.