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RETIREMENT BENEFITS WILL RISE BY 6 PERCENT AS MPS HAMMER OUT SOCIAL INSURANCE LAW

Veto fails to block pension reform

SLOVAK pensions will definitely rise by 6 percent from July, after parliament on June 17 overruled a presidential veto on the controversial measure.
Additionally, parliament is set to begin debate on a draft social security law that will establish the so-called capitalisation pillar of the pension system as well as raising the country's retirement age to 62 years.
"The idea of [the social security law] is to maintain macroeconomic growth and continue decreasing unemployment, which will also influence the reduction of [government] payments," said Labour Ministry spokesperson Martin Danko.


THE NEW social security bill will mean several more years of work for Slovaks.
photo: File photo

SLOVAK pensions will definitely rise by 6 percent from July, after parliament on June 17 overruled a presidential veto on the controversial measure.

Additionally, parliament is set to begin debate on a draft social security law that will establish the so-called capitalisation pillar of the pension system as well as raising the country's retirement age to 62 years.

"The idea of [the social security law] is to maintain macroeconomic growth and continue decreasing unemployment, which will also influence the reduction of [government] payments," said Labour Ministry spokesperson Martin Danko.

"Not taking this step would mean increasing [state pension] burdens and would hurt the budget," he said.

Despite passing parliament with broad support in May, the pension hike was returned by President Rudolf Schuster, who refused to sign the bill. Schuster's spokesperson said the president would prefer to see pensions increased by at least 8 percent.

The governing coalition had originally proposed a pension hike of 5 percent, while the country's Confederation of Labour Unions (KOZ) was calling for a 10 percent increase. Pension reform is included in a set of grievances that the KOZ wants addressed under threat of a general strike in September.

Although the bill passed in May with 128 votes in the 150-seat assembly, only 76 legislators voted to overturn Schuster's refusal of the bill. Members of opposition parties did not support the override, and some were calling for renewed debate on the bill after the veto.

"If the law increasing pensions by 6 percent was passed by a large majority, it was only to keep the government's original bill, which called for a 5 percent rise, from passing," said Sergej Kozlík from the opposition Movement for a Democratic Slovakia (HZDS) party.

"Of course we support the president's proposal of an 8 percent [increase], because that is the minimum level that we proposed," said Kozlík, after the pension hike had been returned to parliament.

Officials from the ruling Slovak Democratic and Christian Union (SDKÚ), however, maintain that the Sociálna poisťovňa social security provider lacks the resources to raise pensions higher than 6 percent, despite the fact that Sociálna poisťovňa head Miroslav Knitl said in May that the agency could afford a pension increase of 7 to 8 percent.

"If Sociálna poisťovňa is to work next year as we want it to, so that it is not bleeding individual funds as it has done up to now, it cannot [spare resources] for a pension increase higher than 6 percent," said Zuzana Martináková of the SDKÚ.

A more difficult challenge to lawmakers than overriding the pension-rise veto will be finding consensus on the social security law, which will transform Slovakia's pension system from the current pay-as-you-go model into a capitalisation system, in which employees divert part of their wages into pension accounts with private asset-management companies.

Included in the social security bill is a provision that from January 2004 would raise Slovakia's retirement age by nine months each year, eventually to 62 years for both men and women. At present, the retirement age for a man is 60 years, and between 54 and 57 years for a woman, depending on how many children she has raised.

"We have to increase the number of people active in the economy," said state secretary at the Labour Ministry Michal Horváth to journalists on June 11, explaining the rising retirement age.

But the law should also streamline the pension process, explained Horváth, as pension levels will no longer depend on parliamentary approval, but will be adjusted annually based on cost of living and real wage figures.

"Another new aspect of this law is that for every month a person eligible for retirement works beyond the retirement age, that person gets a half a percent higher pension when he or she retires," said Horváth.

Critics of the social security bill, including members of the ruling Hungarian Coalition Party (SMK), say that Labour Ministry officials made extensive last-minute changes to the bill without consulting cabinet partners.

Critics also say that the state is not prepared for the reforms and that if the law is passed, some retirees will be getting lower pensions than they are currently entitled to.

"There is no point in undergoing pension reform if it brings people lower pensions," said Pavol Kárász, analyst with the Institute for Slovak and World Economy at the Slovak Academy of Sciences.

"The state is essentially ignoring the fact that the Slovak economy is not very strong and the public sector is not very efficient," he said.

According to Juraj Kotian, analyst with Slovenská sporiteľňa bank, pension reform is more about making the system work efficiently than about ensuring higher payouts.

"Increasing pensions is not the root of the reforms. It is more important to increase the justice of the system - to look at the amount of paid levies and the amount of retirement [payouts]," he said.

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