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CABINET USES WORLD BANK FUNDS TO INFORM SLOVAK CITIZENS ON SYSTEM CHANGES

Pension media blitz targets public

AN ONSLAUGHT of televisions ads, radio interviews and print advertising recently kicked off a media blitz on pension reform. Sponsored by the Slovak cabinet, the 10-month-long campaign is designed to educate the public about the various pension reforms that, come January, will radically alter the state's current system.

AN ONSLAUGHT of televisions ads, radio interviews and print advertising recently kicked off a media blitz on pension reform. Sponsored by the Slovak cabinet, the 10-month-long campaign is designed to educate the public about the various pension reforms that, come January, will radically alter the state's current system.

The campaign is designed to "get people thinking about their pension safety" according to Zuzana Gergeľová, the campaign coordinator from the Social Affairs Ministry.

Taking Sk40 million (€1 million) in loans from the World Bank, the Slovak government hired private public relations agency, VYV PR, to design, develop and roll out the pension reform campaign.

The cabinet hopes to inform people about the reform package, which, among other things, allows workers to open private pension savings accounts or provide funds to pension management firms for investment. This option, called the capitalisation pillar, is in addition to the obligatory pay-as-you-go system, whereby monthly pension payments are sent to Sociálna poisťovňa.

Experts say the capitalisation pillar gives people new ways to save money for retirement. Under the current system, monthly pension allowances can reach a maximum of only Sk8,000 (€200).

"The basic message of the reform is that people are now responsible for their own pension plans. This crucial message of responsibility is reflected in the pension reform campaign logo, which runs with the motto, 'New pension system - the future is in your hands'," said Adriana Bendová, the executive director of VYV PR.

In addition to print, TV and radio advertisements, the state-owned postal company, Slovenská pošta, will also distribute basic informational brochures to Slovak households. Brochures will be available at regional post offices as well.

Campaign coordinator Gergeľová said that the public could also access information by calling a hotline (0800 101 105) or by visiting the government's website, www.dochodok.gov.sk. The website includes a pension calculator that allows people to estimate their pension savings on a capitalisation pillar, and compare that amount with the pay-as-you-go pillar.

According to a test calculation using the pension calculator, under the new reform, a 35-year-old worker having earned Sk15,000 (€375) per month for the past 15 years and presumably until retirement would have saved enough via the pay-as-you-go pillar to receive Sk11,536 (€288) per month upon retiring. If that same person joins the capitalisation pillar in January, he or she can expect to increase their pension payouts to Sk13,147 (€329) per month upon retiring.

Social Affairs Minister Ľudovít Kaník said that the new Slovak pension system "creates a chance for higher and more just pensions" for the people.

Currently, pensions are calculated based on the wages received in the last years of their employment. The new system will take into account a worker's earning history.

Those who participate in the capitalisation pillar will contribute nine percent of their monthly wages to their private savings accounts or to their pension management firms, and their employers will contribute another nine percent. In addition to matching private savings, employers are expected to continue contributing nine percent on behalf of employees to the pay-as-you-go pillar.

Workers have until mid-year 2005 to decide if they want to participate in the capitalisation pillar.

Participation is not available to everyone, however. Those who have fewer than 10 years to go until retirement, for example, are not eligible. The capitalisation pillar is only available to people who can contribute for 10 or more years.

Pension reform campaign coordinator, Gergeľová, told the press that the media campaign would be particularly intense in October and November, just before pension management companies start advertising to attract clients.

The Office for Financial Markets (ÚFT) has so far issued licenses to five companies prepared to manage pension investments: Aegon DSS, Allianz-Slovenská Poisťovňa, Prvá dôchodková sporiteľňa, ING, and VÚB Generali. Six other firms are waiting for licensure, including Credit Suisse Life & Pensions, and ČSOB.

Once licensed, pension management firms can start signing the first contracts with their clients in January 2005.

Jiří Rusnok, who leads ING's pension insurance department, says his company anticipates signing the biggest number of contracts during that first month.

Rusnok told the state-run news agency TASR that, within a year and a half, he expects two-thirds of Slovak workers to join the capitalisation pillar - 1.3 million people. Thus, pension management firms would control up to Sk20 billion (€500 million) worth of assets.

Rusnok also believes the new pension system will help reduce the number of illegal workers, since those employed outside the system would necessarily lose out on future savings.

The current Slovak government took power in 2002 and pledged, as one of its main priorities, to reform the state's pension system. The current system has been labelled outdated, no longer suited to secure the nation's senior citizens' pensions, in part because of changing demographic developments.

Other European countries are also considering reshaping their pension systems for the same reason. As a whole, Europe's population is getting older and fewer young people are entering the workforce.

Marek Lendacký, the head of the Social Affairs Ministry's social insurance and pension savings section, put it this way: "Without changing the system, we would have been forced to cut retired persons' pensions, increase payroll taxes to working citizens, or both."

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