For several years, the State Audit Office has been calling for the issue of service pensions to be resolved in its audits and encouraging politicians to return to the discussion about the original meaning of this pension mechanism finally, which has been lost over the years. This year, we have calculated the amount of liabilities undertaken for the payment of service pensions for the first time and presented them in the annual consolidated financial statement of the state (ACFSS). These future liabilities are already worth billions of euros. At the same time, politicians have resumed the discussion about expanding the range of recipients of service pensions. The State Audit Office emphasises once again that without reviewing already existing service pensions or increasing the scope of recipients of service pensions, serious doubts arise about the ability of budget revenues to cover the expenditure in the future.
In Latvia, a service pension policy exists that entitles those working in several professions, such as military personnel, diplomats, prosecutors, judges, home affairs employees, artists of state and municipal professional orchestras, choirs, concert organisations, theatre, circus, and representatives of other professions, to receive a service pension before reaching general retirement age. The State Audit Office finds that this domain is not arranged and does not correspond to the subject matter of Latvia’s pension policy. Service pension policy is unfair to recipients of old-age pensions, as it allows the people receiving it to have a larger pension, whose amount does not depend on the accumulated pension capital, and allows continued working in a profession from which an employee has retired due to reduced working capacity and social danger. The range of recipients of service pensions has expanded over the years. Still, nobody has carried out a comprehensive assessment of the professions to be included in the service pension system.
The international requirements introduced this year in public sector accounting and annual reporting finally reveal the true picture of our country’s future commitments regarding post-employment benefits, including service pensions, which make up the major part of those commitments. The amount of state budget funds required for service pensions is significantly increasing year by year. If one required 45 million euros for service pensions in 2011, then one needs already 77.5 million euros in 2020. Future liabilities for service pensions have already reached 4 billion euros.
One should have completed liabilities calculations already in the spring of 2019 when preparing the annual reports of ministries, central state institutions, and local and regional governments, but chaos had occurred due to insufficient activities of the State Treasury. It was not clear to the authorities who should calculate the post-employment benefits, how to do it, and in the annual report of which state institution the liabilities should be reported. Following the insistence of the State Audit Office to provide clear and unambiguous instructions to the preparers of the annual consolidated financial statement, the State Treasury started negotiations with the authorities only in January 2020. Still, the guidelines drafted by the State Treasury were incomplete and erroneous. They were clarified only when the State Audit Office called on the Minister of Finance to intervene. Thus, additional liabilities of 1.4 billion euros were calculated while drafting the ACFSS.
The State Audit Office also discovered during the audit that local and regional governments had to invest additional resources to receive information from the State Archives and to be able to calculate those liabilities. Following the administrative-territorial reform, it would be essential to ensure that the necessary information is available free of charge.