This article is about the problems of formation of pension funds and pension reform in the capital market of Latvia. The capital of pension funds is being accumulated, concentrated and invested into financial markets, such as stock market and bank capital market. In the article authors turn to such problems: in the structure of placements in Latvian commercial banks dominate short term deposits, but long term resources are demanded; a part of the capital of pension funds can be located in securities of Riga Stock exchange Official list, but there is lack of emitents; the risk of pensions for existing pensioners is heightened; there are high administrative costs when bringing in new pension reform. Implementation of three level pension system solves a row of problems mentioned - attracting long term capital for banks; encouraging largecompanies to participate in securities market, etc.