Exiting Pillar II Pensions: State Pension Points and Payroll Rules

Under the updated Law on Pension Accumulation of the Republic of Lithuania, a two-year transitional period runs from January 1, 2026, to December 31, 2027, allowing participants in the second-pillar pension system to terminate their contracts and withdraw from the scheme.

Upon withdrawal, the accumulated capital contributed by the individual and their employer, together with the investment return, is disbursed directly to the individual's bank account. These payouts are exempt from personal income tax (GPM) and State Social Insurance (VSD) contributions. Conversely, state budget co-payments and pre-2019 Sodra transfers are returned to the State Social Insurance Fund reserve fund and converted into state pension accounting units (points).

In 2026, acquiring one pension point requires EUR 2,419.43 in returned contributions. This threshold is calculated from the approved base average monthly wage (VDU) of EUR 2,312.15 (annual base of EUR 27,745.80) applying the 8.72% pension social insurance rate. According to Sodra, participants exiting the system acquire an average of approximately 1.12 pension points, which directly increases their future individual statutory pension. Under the Law on Social Insurance Pensions, the statutory annual ceiling of 5 pension points per calendar year does not apply to these converted funds. Exiting individuals can verify their credited points in their personal Sodra accounts through reports REP.49.1 and REP.11.

For corporate payroll and HR departments, the timeline for stopping contribution withholding follows strict rules. An employee's application submitted to a pension accumulation company does not permit the employer to cease deducting the 3% pension contribution. Pension companies process exit applications quarterly, finalizing decisions only after the quarter concludes, with funds disbursed within the first 10 business days of the subsequent quarter.

Employers must continue withholding the 3% contribution and reporting it on SAM forms until the pension company's quarterly decision takes effect, unless the employee submits a separate formal request to suspend current deductions. Payroll deductions may only be halted in the payroll software after confirmation is delivered via the Sodra portal for insured entities (EDAS) regarding the contract termination or suspended payments.