The International Monetary Fund (IMF) has urged Lithuania to undertake a “comprehensive assessment” of its multi-pillar pension system, following reforms to the second pillar.

In its 2026 Article IV Consultation with the Republic of Lithuania, the IMF said the recent erosion of the second pillar intensifies the need to re-strengthen the pension system to ensure both long-term fiscal sustainability and social adequacy.

The changes to Pillar II included ending automatic enrolment and allowing early withdrawals or contribution breaks from 2026-2027, which the IMF said will lower replacement rates and raise future fiscal costs.

The IMF recommended that the near term should focus on stabilising the second pillar by maintaining state contributions to preserve incentives to participate.

It also said that preserving accumulated first-pillar balances would help build buffers against adverse demographics and a weakened second pillar.

“More fundamentally, a comprehensive reassessment of the pension strategy is needed to reinforce Pillar II and better align the system with European best practices,” the IMF stated.

The IMF noted that Lithuanian authorities “broadly agreed” with these recommendations.

At the end of April 2026, Pillar II pension assets fell to €6.4bn, down from €10.6bn at the end of 2025, reflecting a loss of about 40 per cent of assets and participants in the first quarter.

The IMF warned that this is likely to weigh on capital market development. In contrast, a stronger Pillar II could help mobilise savings and ease small and medium-sized enterprise (SME) financing constraints.

“Pension reform that strengthens adequacy and sustainability would help mobilise long-term domestic savings and support voluntary participation. Combined with stronger financial literacy and trust, this could shift savings toward capital markets and expand long-term financing for firms,” it stated.

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