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The ceiling on employees' contributions to the state social insurance fund Sodra would be set at 120 average monthly wages per year, or around 7,480 euros per month, in 2017, the first year, and would be then gradually lowered to 108 in the second year, 96 in the third year, 84 in the fourth year, 72 in the fifth year, and 60 in 2022, the sixth year.

Currently, there is no ceiling on contributions to Sodra, although there is a limit to the amount of social security benefits the fund pays.

The amendments passed by the Seimas provide for financing the basic part of state social insurance pensions from the state budget, but there will be a transitional period when Sodra's budget funds will be used to finance it.

The rate of the employer's contribution to Sodra will decline by 1% in 2017. From 2018 on, decisions on this will be made on an annual basis after weighing the impact on the sustainability of public finances.

The law makes it mandatory to set up a social insurance reserve fund consisting of two parts, one of which will be for pensions and the other for other social security benefits.

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Sodra's reform will not produce quick results as the planned ceiling on social insurance contributions will remain high in the first years, the executive director of the Investors' Forum, an association of foreign investors in Lithuania, said on Wednesday.

Ruta Skyriene thinks that the introduction of the ceiling may prompt a rise in salaries after it is lowered to 60 average monthly wages per year.

"I welcome plans to gradually lower (the ceiling) and hope that this will be done. On the negative side, no effect will most probably will be felt due to the high ceiling, which may discredit the idea per se," Skyriene told BNS.

"We will feel no immediate effect as to salaries' growth. Perhaps this will happen when the ceiling is lower," she said.

Lithuania's planned pension reform that will tie pensions' growth to the growth of the economy and average wages will help prevent populist promises in the run-up to general elections, Nordea's chief economist in Lithuania said on Wednesday.

"I think this is one of the best, if not the best, parts of the social model, because it was high time for the issue of indexation of pensions to be addressed. I do welcome the decision on the indexation of pensions to the wage bill. This reduces the likelihood of populist decisions to increase pensions in the future," Zygimantas Mauricas told BNS.

According to the economist, the decision to use state budget funds to pay basic pensions, rather than Sodra's funds, will help ensure the sustainability of public finances.

"I believe this decision is aimed at ensuring a long-term sustainability of Lithuania's finances, which will enhance Lithuania's long-term economic growth," Mauricas said.

"We will fee no consequences in a year or two years' time, but I think the law will be helpful in post-election years and especially in the run-up to general elections in that it will tame populist promises to raise pensions," he said.