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Proposal shakes pension system

THE GOVERNMENT is not giving up on the idea of turning the country's social insurance system into what Prime Minister Robert Fico calls a system involving more solidarity.
Labour Minister Viera Tomanová submitted on July 3 a draft revision to the Social Insurance Act that, if passed, would allow people to quit the so-called capitalisation pillar of the pension system from the beginning of January 2008 until the end of June 2008.

THE GOVERNMENT is not giving up on the idea of turning the country's social insurance system into what Prime Minister Robert Fico calls a system involving more solidarity.

Labour Minister Viera Tomanová submitted on July 3 a draft revision to the Social Insurance Act that, if passed, would allow people to quit the so-called capitalisation pillar of the pension system from the beginning of January 2008 until the end of June 2008.

The Labour Ministry estimates that about 76,500 savers would quit the capitalisation pillar and ask for a pay-out of their savings, totalling almost Sk2.5 billion (€74.63 million).

Savings earned to date from private pension fund management companies might not automatically move to state social security provider Sociálna Poisťovňa and be used for pensions. People who have saved in private funds could ask companies to transfer their savings to their private accounts, the government suggested.

Tomanová said she still does not know whether the savers would be able to keep the money.

"The whole (proposal) is being put to public discussion," she said. "This means we are thinking some things over."

The capitalisation pillar was one of the main attributes of the old-age pension reform initiated by the government of Mikuláš Dzurinda, which enabled people to save for their pensions in private accounts administered by pension fund management companies. The main message of the reform was that the people would be responsible for their own pension plans.

Entering the second pillar is voluntary for people born before 1986, while people born after that date enter the pillar automatically.

Based on Tomanová's proposal, all clients of the pension savings scheme would get the opportunity to leave the capitalisation pillar.

The revision would also give the state the tools to withdraw certain groups of citizens - for example, women on maternity leave - from the system of pension savings on private accounts and return them to Sociálna Poisťovňa.

The amendment would also change conditions for those collecting early pensions, as well as widows' and widowers' pensions.

Tomanová said that the changes would bring an extra Sk11 billion (€328.4 million) to state coffers.

But the changes would hurt current and future pensioners, said former Labour Minister Iveta Radičová.

Pension fund management companies are also unhappy with Tomanová's draft, dubbing it a harsh blow to the system.

"The latest proposals on changes to the capitalisation pillar are absolutely destructive, mainly if we talk about the possibility of paying out pension savings to clients," Zuzana Tichá, a spokeswoman for the pension fund management company AXA, told The Slovak Spectator. "If most people would use this option, it would cause the second pillar to collapse."

If a lot of clients quit the second pillar, it would basically paralyse the whole social insurance system because under the ministry proposal, people could withdraw their savings from the private pension saving funds, according to Tichá. Shareholders of the pension fund management companies would consider demanding compensation from Slovakia, she added.

Sociálna Poistovňa will not comment on the draft while it is undergoing an inter-departmental review, Denisa Turčíková, a spokeswoman for the Sociálna Poistovňa general director, told The Slovak Spectator.

The latest pension reform was built on three pillars. The first pillar is a pay-as-you-go system, which is now 100-percent insurance-based with disbursements that reflect the monthly amount paid into the account and the length of the savings' lifespan.

The second pillar involves private pension savings plans, whereby a client can redirect 50 percent of his payment (nine percent of his annual salary) into a private pension investment account. The other half of the payment flows into the first pillar, the pay-as-you-go-system.

The third pillar is a voluntary supplementary savings system, in which special insurance companies, banks, asset management companies and other financial institutions provide supplementary savings products to interested citizens.

The labour minister also proposed that people with higher incomes pay more to the public social insurance provider Sociálna Poistovňa.

The changes, which could take effect next year, would kill the current ceiling for the maximum calculation bases for payments to the social insurance funds, which determine the amount of compulsory social insurance premiums, the SITA newswire wrote.

The revision would most affect people with incomes higher than 1.5 times the minimum wage. However, people who would pay higher payroll taxes to the social insurer would not necessarily receive higher pensions in future.

Fico supports the ministry's amendment.

"Who's to pay more, if not the rich?" Fico told a press conference following a cabinet session on July 4. "We support this proposal. We're social democrats, after all."

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