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FINANCE

FinMin moots changes to second pension pillar

THE GOVERNMENT may solve an expected shortfall in public finances by cutting contributions to the second pillar of the pension system, which was introduced by the previous right-wing government as part of its reform of Slovakia's retirement pension scheme.

THE GOVERNMENT may solve an expected shortfall in public finances by cutting contributions to the second pillar of the pension system, which was introduced by the previous right-wing government as part of its reform of Slovakia's retirement pension scheme.

At the moment, taxpayers are required to pay 18 percent of their gross wages into the Sociálna Poisťovňa insurer, which divides the sum equally between a pay-as-you-go pillar and a capitalization pillar. The money deposited in this second pillar accumulates in private accounts, to be paid out individually when people retire.

However, the Fico govern-ment's promised handouts to current pensioners and parents of newborns threaten to deepen the deficit of Sociálna Poisťovňa, which pays out all forms of social benefits.

To address the cash shortage, the Finance Ministry has proposed reducing the monthly deposits that people pay into their private pension accounts from 9 to 6 percent of their gross wage, and leaving the money in the public system to pay for its other social handouts.

Ministry spokesman Miroslav Šmál said that this is only one of several possibilities the ministry is studying, and that nothing has yet been decided. He said it was too late to introduce an amendment to parliament launching such a change as of January 1, 2007, "but we don't rule out the possibility that it might be prepared in future".

The Labour Ministry added that it has prepared four other possible solutions for the cash shortage, arguing that reducing the second pension pillar contribution was "risky".

Former Labour Minister Ľudovít Kaník said that any changes to the second pension pillar would have a catastrophic impact on the whole pension system.

The average monthly deposit into capitalization pillar private pension accounts is Sk1,200 to Sk1,500 a month. For a 30-year-old who saves until retirement at 65, the drop from nine to six percent would reduce his private pension account savings from over Sk2 million to Sk1.35 million.

"If this measure were introduced, it wouldn't just hurt the second pillar, it would destroy it," said the conservative F.A. Hayek Foundation.


- From press reports

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