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On the reduction of the size of pension contributions accumulated in pension funds

Case No. 10/2012

 THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

IN THE NAME OF THE REPUBLIC OF LITHUANIA

 RULING

ON THE COMPLIANCE OF PARAGRAPH 1 (WORDING OF 20 DECEMBER 2011) OF ARTICLE 4 OF THE REPUBLIC OF LITHUANIA’S LAW ON REFORM OF THE PENSION SYSTEM WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

 19 December 2014, No. KT50-N16/2014

Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Elvyra Baltutytė, Vytautas Greičius, Danutė Jočienė, Pranas Kuconis, Gediminas Mesonis, Vytas Milius, Egidijus Šileikis, Algirdas Taminskas, and Dainius Žalimas

The court reporter—Daiva Pitrėnaitė

The Constitutional Court of the Republic of Lithuania, pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1 and 531 of the Law on the Constitutional Court of the Republic of Lithuania, at the Court’s hearing, on 18 December 2014, considered, under written procedure, constitutional justice case No. 10/2012 subsequent to the petition (No. 1B-19/2012) of the Vilnius Regional Administrative Court, the petitioner, requesting an investigation into whether:

– Paragraph 1 (wording of 20 December 2011) of Article 4 of the Republic of Lithuania’s Law on Reform of the Pension System, insofar as, with regard to the persons who became participants of the pension accumulation system from 13 July 2010 until 28 December 2011, the size of the cumulative pension contribution reduced from 2 percent to 1.5 percent of their income on which state social insurance contributions are calculated was established in 2012, according to the petitioner, without establishing any mechanism for compensation for the reduced contributions, was not in conflict with Articles 23 and 52 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law;

– Paragraph 13 of Article 3 of the Republic of Lithuania’s Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012, insofar as, with regard to the persons who became participants of the pension accumulation system from 13 July 2010 until 28 December 2011, the size of the cumulative pension contribution reduced from 2 percent to 1.5 percent of their income on which state social insurance contributions are calculated was established in 2012, was not in conflict with Articles 23 and 52 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law.

The Constitutional Court

has established:

I

The petition of the Vilnius Regional Administrative Court, the petitioner, is substantiated by the following arguments.

  1. The participants of the pension accumulation system (hereinafter also referred to as the participants) and pension accumulation companies, while concluding agreements, from 13 July 2010 (i.e. from the entry into force of the Republic of Lithuania’s Law Amending Article 4 of the Law on Reform of the Pension System adopted on 30 June 2010, which established the size of the cumulative pension contribution equal to 2 percent of the participants’ income on which state social insurance contributions are calculated (hereinafter referred to as the income)) until 28 December 2011 (i.e. until the entry into force of the impugned legal regulation that established, in 2012, the size of the cumulative pension contribution equal to 1.5 percent of the income), on the accumulation of part of the state social insurance contribution in a personal pension account opened in a pension accumulation company, essentially had a reason to expect that the obligation undertaken by the state to transfer cumulative pension contributions equal to 2 percent of the income to the participants’ pension accounts would be carried out and the said size of the contribution would not be changed or, when changing the legal regulation, the losses incurred due to the reduction of contributions would be compensated for in a fair manner. The size of transferrable contributions established in the Law on Reform of the Pension System (hereinafter also referred to as the Law) was one of the essential factors in making persons decide to become participants of pension funds and accumulate such contributions in pension accumulation companies, as well as in taking decisions related to their economic situation and the size of property (property rights) at their disposal, and in planning the size of their ownership right.
  2. Under the impugned legal regulation, the persons, who concluded pension accumulation agreements from 13 July 2010 until 28 December 2011, lost, in 2012, against their own free will and consent, the right to accumulate 2 percent of their income in pension funds, although, under the legal regulation that was in force at the moment of concluding the aforesaid agreements, they had such a right and legitimate expectations to do so. In addition, according to the petitioner, the Law on Reform of the Pension System (wording of 3 December 2002 with the amendment of 20 December 2011) provided for no mechanism for compensation for the reduced contributions.
  3. After the state has consolidated the possibility of accumulating part of an old-age pension in private pension funds, it has a duty to ensure such a legal mechanism to the effect that a person would have a possibility of accumulating a pension under the conditions that were established when the person was taking a decision on the accumulation of a pension in a private fund. Therefore, the petitioner had doubts whether the impugned legal regulation that established, in 2012, the reduced size of the cumulative pension contribution equal to 1.5 percent of the income and provided for no mechanism for compensation for the reduced contributions did not violate the legitimate expectations of the persons who became the participants prior to the entry into force of the relevant law, and did not violate the social guarantees and innate human rights guaranteed by the Constitution, whether it did not deny the participants’ right to receive an old-age pension, i.e. an old-age pension of such a size that was established at the moment of concluding agreements on the accumulation of pensions, and also whether it did not violate the provision “[t]he state shall guarantee its citizens the right to receive old-age <...> pensions” of Article 52 of the Constitution.
  4. The state substantially limited, by means of the impugned legal regulation, persons’ possibility of planning their own and their families’ income, unilaterally deviated from the obligations undertaken by it without providing any adequate mechanism for compensation for the losses of contributions, and thus unjustifiably limited the rights of ownership of the participants and pension accumulation companies. The size of the cumulative pension contribution transferred to a pension accumulation company is inseparably linked with the acquisition and realisation of the participant’s right of ownership. Therefore, in the opinion of the petitioner, the reduction of this size for the persons who became the participants prior to the entry into force of the relevant law should be regarded as an impermissible intervention by the state in the property of these persons and does not comply with the provisions of Article 23 of the Constitution that property is inviolable and the rights of ownership are protected by law.
  5. In the opinion of the petitioner, Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law on Reform of the Pension System, insofar as it applies to the persons who became participants of the pension accumulation system from 13 July 2010 until 28 December 2011, consolidates the principle of retroactive effect, i.e. the norms established therein apply to the legal relations that were commenced prior to the entry into force of the relevant law.

II

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations were received from Algimantas Dumbrava, a member of the Seimas, acting as the representative of the Seimas, the party concerned, in which it is maintained that Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law on Reform of the Pension System and Paragraph 13 of Article 3 of the Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012 were not in conflict, in the impugned aspects, with the Constitution. The position of the representative of the Seimas is substantiated by the following arguments.

  1. The reduction of the size of the cumulative pension contribution that was established in 2012 had resulted from the economic situation in the state in difficult times. In the event of an economic crisis, everybody must share existing hardships and understand that certain economic restrictions are inevitable.
  2. The size of state social insurance old-age pensions is reduced proportionally for the participants of the pension accumulation system, taking account of the part of the state social insurance contribution that is designated for the accumulation of pensions. In cases where the size of the cumulative pension contribution is reduced, the size of the state social insurance old-age pension increases.
  3. After consolidating, in 2012, the size of the cumulative pension contribution reduced from 2 percent to 1.5 percent of the income for all the participants of the pension accumulation system in the impugned Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law, the size of the cumulative pension contribution equal to 2.5 percent of the income, i.e. 0.5 percent of the income higher than the one established before 2012, was established in 2013. Thus, compensation for the part of cumulative pension contributions that was reduced in 2012 was established in 2013. The will of the legislature to compensate, in 2013, for the part of cumulative pension contributions that was reduced in 2012 is also confirmed by the speeches of members of the Seimas when considering and approving the said legal regulation.
  4. The verified data on the revenue and expenditure of the budgets of the State Social Insurance Fund of Republic of Lithuania (hereinafter also referred to as the SSIF) which are given in the sets of the consolidated statements of the SSIF for the years 2012 and 2013 show that, in 2013, as compared to 2012, the funds transferred to pension funds increased significantly, thus, the reduction, established in 2012, of the size of the cumulative pension contribution was compensated for de iure and de facto.

III

In the course of the preparation of the case for the Constitutional Court’s hearing, a written opinion was received from Vitas Vasiliauskas, Chairperson of the Board of the Bank of Lithuania.

 

The Constitutional Court

holds that:

I

On the compliance of Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law on Reform of the Pension System with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law

  1. The Vilnius Regional Administrative Court, the petitioner, impugns, inter alia, the compliance of Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law on Reform of the Pension System, insofar as, with regard to the persons who became participants of the pension accumulation system from 13 July 2010 until 28 December 2011, the size of the cumulative pension contribution reduced from 2 percent to 1.5 percent of their income on which state social insurance contributions are calculated was established in 2012, without establishing any mechanism for compensation for the reduced contributions, with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law.

It should be noted that the impugned Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law prescribed: “The size of the pension contribution in 2004 shall be 2.5 percent, in 2005—3.5 percent, in 2006—4.5 percent, in 2007 and 2008—5.5 percent, from 1 January 2009 until 30 June 2009—3 percent, from 1 July 2009 until 31 December 2009—2 percent, in 2012 —1.5 percent, and in 2013—2.5 percent of the participants’ income on which state social insurance contributions are calculated.”

Consequently, under the impugned Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law, the size of the cumulative pension contribution reduced from 2 percent to 1.5 percent of the income was established, in 2012, for all the participants of the pension accumulation system and not only for those who became the participants from 13 July 2010 until 28 December 2011.

Thus, in the constitutional justice case at issue, the Constitutional Court will investigate the compliance of Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law on Reform of the Pension System, insofar as it established, in 2012, the size of the cumulative pension contribution equal to 1.5 percent of the income of the participants of the pension accumulation system on which state social insurance contributions are calculated, according to the petitioner, without establishing any mechanism for compensation for the reduced contributions, with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law.

  1. The impugned legal regulation should be construed in view of the fact of how the legal regulation, consolidated in Paragraph 1 of Article 4 of the Law on Reform of the Pension System, of the cumulative contribution and its size has been changing.

2.1. On 3 December 2002, the Seimas adopted the Law on Reform of the Pension System that came into force on 1 January 2003, by means of which it established a possibility for the residents of the Republic of Lithuania who are covered by state social insurance to accumulate, as from 1 January 2004, part of this insurance contribution (cumulative pension contributions) in chosen pension accumulation companies and the right to receive, from the funds accumulated in the said companies (from the accumulated pension assets), under the conditions established by law, certain pension payments—additional income in old age—together with a proportionately smaller state social insurance old-age pension, taking account of the cumulative pension contribution. Paragraph 1 of Article 4 of the Law prescribed: “The size of the pension contribution in 2004 shall be 2.5 percent, in 2005—3.5 percent, in 2006—4.5 percent, and as from 2007—5.5 percent of the participants’ income on which state social insurance contributions are calculated.”

2.2. In order to balance the SSIF budget during the economic crisis, Paragraph 1 of Article 4 of the Law was amended and/or supplemented several times in 2009–2010. Paragraph 1 (wordings of 15 January 2009, 28 April 2009, and 30 June 2010) of Article 4 of the Law established, respectively, the following reduced sizes of cumulative pension contributions for the years 2009–2011: as from 1 January 2009—3 percent and, as from 1 July 2009—2 percent of the income. Article 2 of the Republic of Lithuania’s Law Amending Article 4 of the Law on Reform of the Pension System that was adopted on 30 June 2010 prescribed that the Government, having stated that the extreme situation in the state is over, submits to the Seimas draft laws on increasing the rate of the cumulative pension contribution.

2.3. On 20 December 2011, the Seimas adopted the Republic of Lithuania’s Law Amending Article 4 of the Law on Reform of the Pension System that came into force on 28 December 2011, by means of which it amended Paragraph 1 (wording of 30 June 2010) of Article 4 of the Law. Paragraph 1 (wording of 20 December 2011), which is impugned by the petitioner, of Article 4 of the Law, as mentioned before, prescribed: “The size of the pension contribution in 2004 shall be 2.5 percent, in 2005—3.5 percent, in 2006—4.5 percent, in 2007 and 2008—5.5 percent, from 1 January 2009 until 30 June 2009—3 percent, from 1 July 2009 until 31 December 2009—2 percent, in 2012 —1.5 percent, and in 2013—2.5 percent of the participants’ income on which state social insurance contributions are calculated.”

Thus, unlike under the previous legal regulation, Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law specifies the period of the application of the size of the cumulative pension contribution established as from 1 July 2009 and equal to 2 percent of the income—until 31 December 2011, it also establishes the size of the said contribution which is equal to 1.5 percent of the income in 2012 and to 2.5 of the income in 2013; the size of the contribution applicable after 2013 is not specified.

It also needs to be mentioned that, when consolidating the said legal regulation and in 2012, the provision of Article 2 of the Law Amending Article 4 of the Law on Reform of the Pension System adopted on 30 June 2010, to the effect that the Government, having stated that the extreme situation in the state is over, submits to the Seimas draft laws on increasing the rate of the cumulative pension contribution, was in force.

2.4. On 14 November 2012, the Seimas adopted the Republic of Lithuania’s Law Amending Articles 1, 2, 3, 4, 7, and 8 of the Law on Reform of the Pension System which, under Paragraph 1 of Article 8 thereof, came into force on 1 January 2013 (save the exception provided for therein) and which, as the explanatory note of its draft makes it clear, was aimed at restructuring the pension accumulation system. The said law, inter alia, amended Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law.

When restructuring the pension accumulation system, Paragraph 1 (wording of 14 November 2012) of Article 4 of the Law consolidated, together with the cumulative pension contribution equal, as from 1 January 2014, to 2 percent of the income and, as from 1 January 2020,  to 3.5 percent of the income, the possibility of additional cumulative pension contributions, i.e. it established that when an additional pension contribution, which is paid by the funds of the participant and the size of which, as from 1 January 2014, is 1 percent of the income and, as from 1 January 2016—2 percent of the income, is transferred to a pension fund, an additional pension contribution, the size of which, as from 1 January 2014, is 1 percent and, as from 1 January 2016—2 percent of the gross average monthly work remuneration of the four quarters of the year before last in the national economy—published by the Lithuanian Department of Statistics—is also transferred, with regard to the participant, from state budget funds.

It should be noted that the compliance of Paragraph 1 of Article 4 of the Law (wording of 14 November 2012) with the Constitution is not a matter for investigation in the constitutional justice case at issue.

  1. In its ruling of 29 June 2012, the Constitutional Court, inter alia, recognised that Paragraph 1 (wordings of 15 January 2009, 28 April 2009, and 30 June 2010) of Article 4 of the Law, insofar as, in a difficult economic and financial situation in the state and in order to ensure, during a period of economic crisis, that state social insurance payments are paid in time to the most vulnerable groups of residents who receive payments from the SSIF budget, the said paragraph established, respectively, from 2009 until 2011, the reduced size of part of the state social pension insurance contribution accumulated in the participant’s personal pension account opened in a pension accumulation company chosen by the said person (i.e. of the cumulative pension contribution), had not been in conflict with the Constitution. It also needs to be mentioned that, when deciding on the compliance of Paragraph 1 (wording of 30 June 2010) of Article 4 of the Law with the Constitution, the Constitutional Court held that the establishment of the size of the cumulative pension contribution reduced from 5.5 percent to 2 percent of the income in the said paragraph should be judged to be an essential reduction of these contributions for the persons who became participants of the pension accumulation system prior to the said reduction, and it also held that the provision of Article 2 of the Law Amending Article 4 of the Law on Reform of the Pension System adopted on 13 June 2010, to the effect that the Government, having stated that the extreme situation in the state is over, submits to the Seimas draft laws on increasing the rate of the cumulative pension contribution, when the said provision is construed as the obligation of the legislature to increase the size of cumulative pension contributions for all the participants of the pension accumulation system and as the precondition for compensating for the reduced cumulative pension contributions, should be judged to be the proper ensuring of the protection of the legitimate expectations of the parties concerned.
  2. In its ruling of 29 June 2012, the Constitution Court, while construing and assessing the provisions of the Law on Reform of the Pension System and the provisions of other legal acts related to it, inter alia, noted that:

– while implementing the powers arising, inter alia, out of Article 52 of the Constitution, the legislature established, in the Law on Reform of the Pension System, that the funds designated for a cumulative part of an old-age pension may be accumulated (inter alia, by investing them) in special pension funds administered by private economic entities;

– neither the Law on Reform of the Pension System, nor any other law obliges pension accumulation companies to guarantee a certain size of a future payment of cumulative pensions—it depends on the size of the funds accumulated from cumulative pension contributions (part of the state social pension insurance contribution, i.e. a pecuniary obligation to the state) and the financial results of their investment activity; thus, the size of cumulative pension contributions is not the only factor upon which the size of a future cumulative pension depends;

– the part of the paid state social pension insurance contribution calculated on a person’s insured income and transferred to their personal pension account in a pension accumulation company, i.e. a cumulative pension contribution, as well as the assets acquired for it and the investment income (costs) received from these assets, i.e. the total sum thereof, on which the size of the payment of a future pension depends, is property of a participant of the pension accumulation system;

– when the size of part of the cumulative pension contribution—the state social pension insurance contribution, i.e. a pecuniary obligation to the state—is reduced, the total size of the contribution (a pecuniary obligation to the state) of the state social pension insurance does not change and part of the contribution designated for the state social insurance old-age pension increases proportionately;

– the size of cumulative pension contributions is variable and cannot be established precisely in advance, i.e. until the day of reception of the insured income of the participants of the pension accumulation system, since it depends on the size of the insured income received by the participants, which, however, can change at any time;

– the SSIF board, within 30 calendar days from the day of the receipt of information on the amounts of the insured income and social insurance contributions calculated for every insured person, which is submitted to the SSIF establishments every month (by 15th day of the next calendar month at the latest), transfers cumulative pension contributions (parts of state social pension insurance contributions) to a relevant pension fund. The pension assets comprising this fund belong, as common shared ownership, to every participant of the pension accumulation system, whilst the participant’s share is established according to the number of units of account included in this person’s pension account.

It should be noted that the legal regulation that should be construed and assessed by means of the said provisions of the Constitutional Court’s ruling of 29 June 2012 has not changed.

  1. In its ruling of 29 June 2012, the Constitutional Court, while construing Articles 23 and 52 of the Constitution and the concept of the constitutional principle of a state under the rule of law, formulated the following provisions of the official constitutional doctrine of the accumulation and reduction of the funds necessary for old-age pensions:

– the right to demand that the pensionary maintenance payments that are established in the Constitution and laws which are not in conflict with the Constitution be paid arises out of Article 52 of the Constitution, whilst the proprietary aspects of this right are defended under Article 23 thereof; after the legislature chooses such a model of the system of old-age pensions where the funds (or part thereof) designated for old-age pensions are accumulated in special pension funds, the accumulated funds may not be equated with the cumulative pension itself (with payable payments), the size of which depends also upon the results of the economic activity (inter alia, investment) of the economic entities administering pension funds; only the right of the person to the funds already accumulated in these funds should be related to the protection of the rights of their ownership; the proprietary aspects of this right are defended under Article 23 of the Constitution;

– the legislature, having established that part of the funds designated for old-age pensions is transferred to special pension funds in order to accumulate future old-age pensions, in case of necessity (for example, in the event of an economic crisis, etc.), when the economic and financial situation in the state changes so that, inter alia, the collection of the funds necessary to pay old-age pensions is not ensured from the income of persons working at that time, has the powers, inter alia, to decide to temporarily reduce part (transferred to special pension funds and designated for the accumulation of future old-age pensions) of the funds that are collected from the said income, however, while doing so, the legislature must follow the imperatives arising out of the Constitution, inter alia, the principles of justice, reasonableness, proportionality, the equality of rights, the protection of legitimate expectations, legal certainty, legal security, and social solidarity, it must not deny the essence of such a cumulative pension itself, and must not establish such a scale of the reduction that would not be necessary in order to achieve the aforementioned objectives;

– persons who have acquired certain rights according to the law have the right to reasonably expect that these rights will be maintained and implemented for the established period of time; if the legislature, in case of necessity (for example, in the event of an economic crisis), decides to reduce the part of the funds collected from the income of working persons that is transferred to special pension funds and designated for the accumulation of a future old-age pension, the legislature not only cannot deny the essence of the cumulative pension, but it must also seek to achieve that persons who have accumulated this pension would not incur any significant losses, and, in case such losses are unavoidable, it must, while taking account, inter alia, of the financial and economic possibilities of the state, establish just compensation for such losses; various ways of such compensation may be chosen;

– the constitutional principle of a state under the rule of law implies, inter alia, the fact that the effect of legal acts is directed to the future, and the retroactive effect of laws and other legal acts is not permitted (lex retro non agit), unless the situation of a subject of legal relations would be alleviated without prejudice to other subjects of legal relations (lex benignior retro agit); no such legal regulation which would interfere with the legal relations that are already over may be established; the prohibition on establishing the date of the entry into force of a legal act that is earlier than the date of the publication of the said legal act arises out of the constitutional principles of legal certainty, legal security, and the protection of legitimate expectations.

  1. According to the petitioner, the reduction, in 2012, of the size of the contribution transferred to pension funds denied the right of the participants of the pension accumulation system to receive an old-age pension of the expected size, violated their legitimate expectations that the obligation undertaken by the state to transfer cumulative pension contributions of the size established in the Law in force at the moment of concluding their agreements on the accumulation of the pension contribution in a person’s pension account or that, when changing the legal regulation, they would be compensated for the losses incurred due to the reduction of those contributions in a fair manner would be carried out, unjustifiably limited the rights of the participants of the pension accumulation system and pension accumulation companies, and also consolidated the retroactive effect of the impugned legal regulation.
  2. When deciding whether Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law, insofar as it established, in 2012, the size of the cumulative pension contribution equal to 1.5 percent of the income, according to the petitioner, without establishing any mechanism for compensation for the reduced contributions, was not in conflict with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law, it should be noted that the consolidation of the impugned legal regulation, as it is clear from the explanatory note of its draft, aimed at reducing the SSIF budget expenditure, taking account of the deficit of said budget. Thus, by means of the impugned legal regulation consolidated in Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law the part of the funds collected from the income of working persons that is transferred to special pension funds and designated for the accumulation of future old-age pensions was reduced in 2012. Such legal regulation had resulted from the economic and financial situation in the state which, despite various measures applied in order to overcome the economic crisis in 2009–2011, was still so difficult that, inter alia, the collection of the funds necessary to pay state social insurance contributions, including old-age pensions, from the income of persons working at that time was not ensured.

7.1. When assessing whether the impugned legal regulation did not violate Article 23 of the Constitution, it should be noted that, as mentioned before, after the legislature chooses such a model of the old-age pension system where the funds (or part thereof) designated for old-age pensions are accumulated in special pension funds, the accumulated funds may not be equated with the cumulative pension itself (with payable payments); only the right of the person to the funds already accumulated in special pension funds should be related to the protection of the rights of ownership and defended under Article 23 of the Constitution.

It should be noted that the legislature, while establishing the reduced size of cumulative pension contributions in Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law, reduced only the size of future cumulative pension contributions and did not reduce the already calculated and paid (transferred to pension accounts in pension accumulation companies) cumulative pension contributions, the amount of the assets acquired for the funds of the said contributions (including the part of these funds which was temporarily not invested) and the investment income (costs) received from the said assets (funds), which, as mentioned before, belongs, as common shared ownership, to every participant of the pension accumulation system and is inherited.

It has been mentioned that the size of cumulative pension contributions is variable and cannot be established precisely in advance, since it depends on the size of the insured income received by the participants. Consequently, pension accumulation companies may not also expect that they will receive income of a certain specific size calculated in advance from already transferred and future cumulative pension contributions.

Thus, it should be held that the impugned legal regulation consolidated in Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law did not violate the imperatives of the protection of the right of ownership arising out of Article 23 of the Constitution.

7.2. When assessing whether the consolidation, by means of the impugned legal regulation, in 2012, of the size of the cumulative pension contribution equal to 1.5 of the income did not violate the right, which arises out of Article 52 of the Constitution, to demand that the pensionary maintenance payments that are established in the Constitution and laws which are not in conflict with the Constitution be paid, and the imperative of the protection of legitimate expectations which is related to the said right and arises out of the constitutional principle of a state under the rule of law, it should be noted that, as mentioned before, the legislature, having chosen such a model of the old-age pension system when the funds (or part thereof) designated for old-age pensions are accumulated in special pension funds, has the powers, in case of necessity, when the economic and financial situation in the state changes so that, inter alia, the collection of the funds necessary to pay old-age pensions is not ensured from the income of persons working at that time, to decide to temporarily reduce the part of the funds collected from the said income that is transferred to special pension funds and designated for the accumulation of future old-age pensions; if significant losses are incurred due to the said reduction, the legislature must, while taking account, inter alia, of the financial and economic possibilities of the state, establish just compensation for the said losses.

It has also been mentioned that, in its ruling of 29 June 2012, the Constitutional Court judged the establishment of the size of the cumulative pension contribution reduced from 5.5 percent to 2 percent of the income to be an essential reduction of the said contributions for the persons who had become participants of the pension accumulation system prior to that reduction. It has also been mentioned that the size of the cumulative pension contribution consolidated in Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law that was reduced from 2 percent to 1.5 percent of the income, i.e. 0.5 percent of the income lower than the one established before the said reduction, was established temporarily—only in 2012, i.e. for one year, since an increased size of the cumulative pension contribution—equal to 2.5 percent of the income, i.e. 0.5 percent of the income higher than the one established prior to the said reduction, was established for all the participants of the pension accumulation system in 2013; under Paragraph 1 (wording of 14 November 2012) of Article 4 of the Law, the size of the cumulative pension equal to 2 percent of the income and equivalent to the one established prior to the said reduction has been established again since 1 January 2014. Thus, the legal regulation consolidated in Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law, under which the size of the cumulative pension contribution that was 0.5 percent of the income higher than the one established prior to the reduction was established for all the participants of the pension accumulation system in 2013, should be judged to be compensation for the cumulative pension contributions reduced in 2012 which complies with the imperatives arising out of Article 52 of the Constitution and the constitutional principle of a state under the rule of law.

Alongside, it needs to be noted that, as mentioned before, when consolidating the said legal regulation, the provision of Article 2 of the Law Amending Article 4 of the Law on Reform of the Pension System adopted on 30 June 2010, to the effect that the Government, having stated that the extreme situation in the state is over, submits to the Seimas draft laws on increasing the rate of the cumulative pension contribution, was also in force in 2012, and it, as the Constitutional Court held in its ruling of 29 June 2012, when construed as the obligation of the legislature to increase the size of cumulative pension contributions for all the participants of the pension accumulation system and the precondition for compensating for the reduced cumulative pension contributions, should be judged to be the proper ensuring of the protection of the legitimate expectations of the parties concerned.

It has also been mentioned that neither the Law on Reform of the Pension System nor any other law guarantees a certain size of a future cumulative pension payment, and when the size of the cumulative pension contribution is reduced, the part of the contribution designated for the state social insurance old-age pension increases proportionately. Consequently, there is no ground for stating that the impugned legal regulation violated the legitimate expectations of the parties concerned to receive a pension of the expected size in the future.

Thus, it should be held that the temporary (in 2012) consolidation of the size of the cumulative pension contribution reduced from 2 percent to 1.5 percent of the income in Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law did not violate Article 52 of the Constitution and the imperative of the protection of legitimate expectations which arises out of the constitutional principle of a state under the rule of law.

7.3. When assessing whether, after establishing, in 2012, the size of cumulative pension contributions reduced from 2 percent to 1.5 percent of the income in Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law, the retroactive effect of the said legal regulation was consolidated, it should be noted that, as mentioned before, under the Constitution, no such legal regulation which would interfere with the legal relations that are already over may be established; the prohibition on establishing the date of the entry into force of a legal act that is earlier than the date of the publication of the said legal act arises out of the constitutional principles of legal certainty, legal security, and the protection of legitimate expectations.

It should be noted that the impugned legal regulation applicable in 2012 was passed on 20 December 2011, whilst it was published and came into force on 28 December 2011, i.e. the date of its entry into force was not earlier than the date of its publication. It has also been mentioned that the size of cumulative pension contributions depends on the size of the insured income received by the participants, it is variable and cannot be established precisely in advance, i.e. it may not be established precisely and transferred to pension accumulation companies until the day of the calculation (reception) of the insured income of the participants of the pension accumulation system; while establishing the reduced size of cumulative pension contributions, the legislature only corrected (reduced) the size of future cumulative pension contributions and did not reduce the already calculated and paid (transferred) cumulative pension contributions. Consequently, the impugned legal regulation did not interfere with the legal relations that had already been over.

Thus, it should be held that the effect of the impugned legal regulation was directed to the future and the prohibition on establishing the retroactive effect (lex retro non agit) of laws and other legal acts, which stems from the constitutional principle of a state under the rule of law, was not violated.

7.4. In the light of the foregoing arguments, the conclusion should be drawn that Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law on Reform of the Pension System, insofar as it established, in 2012, the size of the cumulative pension contribution equal to 1.5 percent of the income, was not in conflict with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law.

II

On the compliance of Paragraph 13 of Article 3 of the Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012 with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law

  1. The Vilnius Regional Administrative Court, the petitioner, impugns, inter alia, the compliance of Paragraph 13 of Article 3 of the Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012, insofar as, with regard to the persons who became participants of the pension accumulation system from 13 July 2010 until 28 December 2011, the size of the cumulative pension contribution reduced from 2 percent to 1.5 percent of their income on which state social insurance contributions are calculated was established in 2012, with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law.
  2. It needs to be mentioned that the Republic of Lithuania’s Law on the Structure of the Budget of the State Social Insurance Fund (wording of 14 November 2008), inter alia, provides that the SSIF budget is approved for a respective budgetary year by adopting a law on the approval of the indicators of this budget (Paragraph 1 of Article 10); the execution of the annual SSIF budget ends on 31 December (Paragraph 1 of Article 14).

In its ruling of 15 February 2013, the Constitutional Court held that every law on the approval of the indicators of the SSIF budget is a law of time-limited validity and time-limited application; the financing of the administrators of appropriations from the funds of the SSIF budget of a respective year is completed when a respective budgetary year ends, i.e. on 31 December of that year; after this date it is no longer possible to apply a law on the approval of the indicators of the SSIF budget.

  1. When a respective legal act is not only invalid, but it may also not be applied at all, the Constitutional Court enjoys discretion to decide on an investigation into the constitutionality of such a legal act and assess, inter alia, the fact whether such an investigation would be significant (the Constitutional Court’s ruling of 15 February 2013). The Constitutional Court has also held that even in those cases when courts apply to the Constitutional Court after they have doubts, in the course of the administration of justice, regarding the compliance of a legal act of lower power with legal acts of higher power, inter alia (and, first of all), with the Constitution, the Constitutional Court does not have to consider a case when a respective legal act is not only invalid (since the compliance of invalid legal acts with legal acts of higher power may be investigated and, normally, is investigated), but it may also not be applied at all, and that this circumstance should always be assessed when a law on the state budget and on municipal budgets or any other act intended for a specific budgetary period is impugned (decision of 13 November 2007 and rulings of 29 June 2012 and 15 February 2013). The said provisions of the official constitutional doctrine are also applicable mutatis mutandis to a law on the approval of the indicators of the SSIF budget (the Constitutional Court’s rulings of 29 June 2012 and 15 February 2013).
  2. It needs to be emphasised that the Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012 should be equated with a legal act that is no longer in force, since it may no longer be applied, the relations regulated by it have ended, they no longer exist, and no intervention of the legislature into the relevant legal regulation would be possible. Thus, the investigation into the compliance of the provision, which is impugned in the constitutional justice case at issue, of the Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012 with the Constitution would be an end in itself. It should be noted that, having held, in this ruling, that Paragraph 1 (wording of 20 December 2011) of Article 4 of the Law on Reform of the Pension System, insofar as it established, in 2012, the size of the cumulative pension contribution equal to 1.5 percent of the income, which is equivalent to the one established by the impugned provision of the Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012, was not in conflict with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law, it should be held that the Vilnius Regional Administrative Court, the petitioner deciding the dispute in question concerning the reduction of the sizes of cumulative pension contributions, will be able to administer justice—to decide the case at law considered by it irrespective of the fact whether the impugned provision of the Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012 would be judged to be in conflict with the Constitution. Thus, a matter for investigation is absent in this case.
  3. Paragraph 2 of Article 80, which regulates the refusals of the Constitutional Court to consider inquiries, of the Law on the Constitutional Court provides that, if in the course of the consideration of the inquiry the matter under consideration ceases to exist, the Constitutional Court dismisses the instituted legal proceedings on the grounds thereof. This provision of the Law on the Constitutional Court is also applicable mutatis mutandis to the consideration of petitions requesting an investigation into the compliance of a legal act with the Constitution (or with another legal act of higher power) and to the adoption of corresponding decisions (inter alia, the Constitutional Court’s rulings of 21 September 2006, 29 June 2012, 15 February 2013, and 13 October 2014). Under Paragraph 3 of Article 69 of the Law on the Constitutional Court, if the grounds for the refusal to consider a petition have been established after the commencement of the consideration of the case during the hearing of the Constitutional Court, a decision to dismiss the case is adopted.
  4. In the light of the foregoing arguments, the part of this constitutional justice case regarding the compliance of Paragraph 13 of Article 3 of the Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012 with Articles 23 and 52 of the Constitution and the constitutional principle of a state under the rule of law must be dismissed.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 531, 54, 55, 56, 69, and 80 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

  1. To recognise that Paragraph 1 (wording of 20 December 2011, Official Gazette Valstybės žinios, 2011, No. 160-7574) of Article 4 of the Republic of Lithuania’s Law on Reform of the Pension System, insofar as it established, in 2012, the size of the cumulative pension contribution equal to 1.5 percent of the income of the participants of the pension accumulation system on which state social insurance contributions are calculated, was not in conflict with the Constitution of the Republic of Lithuania.
  2. To dismiss the part of the case regarding the compliance of Paragraph 13 (Official Gazette Valstybės žinios, 2011, No. 161-7620) of Article 3 of the Republic of Lithuania’s Law on the Approval of the Indicators of the Budget of the State Social Insurance Fund for 2012 with Articles 23 and 52 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law.

 

This ruling of the Constitutional Court is final and not subject to appeal.

Justices of the Constitutional Court:                         Elvyra Baltutytė

                                                                                             Vytautas Greičius

                                                                                             Danutė Jočienė

                                                                                             Pranas Kuconis

                                                                                             Gediminas Mesonis

                                                                                             Vytas Milius

                                                                                             Egidijus Šileikis

                                                                                             Algirdas Taminskas

                                                                                             Dainius Žalimas