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Bill eases pension change

LAST year the government opened up the second, 'capitalisation', pillar of the pension system for six months, allowing more than 1.5 million people the opportunity to leave the pillar from January until June 2008.

LAST year the government opened up the second, 'capitalisation', pillar of the pension system for six months, allowing more than 1.5 million people the opportunity to leave the pillar from January until June 2008.

Now, however, the government wants to make the way out even easier for people who have been saving with private pension fund management companies. These savers would no longer be required to submit a notary-authorised signature when applying to leave the second pillar, reads a bill produced by Labour Minister Viera Tomanová.

While the labour minister says that the legislation is completely innocent and has been drafted in response to citizens' demands, the opposition says the changes could be easily abused and that the legislation offers no guarantees.

Opponents of the fast-tracked legislation say the bill, which the government produced over a couple days and parliament adopted on February 14, is part of a campaign that the government has been waging against the second pillar.

The second pillar was one of the main features of the Mikuláš Dzurinda government's old-age pension reform, according to which clients could redirect 50 percent of their social insurance fees into a private pension company, the 'second pillar', with the rest going into what is known as the 'first pillar', the pay-as-you-go-system administered by the public social security provider Sociálna Poisťovňa.

The first pillar is 100-percent insurance-based, with disbursements that reflect the monthly amount paid into the account and the length of the savings' lifespan.

"Citizens asked to be able to quit the system without an authorised signature and we responded," Tomanová told the public service Slovak television STV.

The labour minister also said that the opposition's fears of potential abuse were absurd.

"The opposition's concerns are unfounded because employees of the social insurance company will check clients' identity by checking their national ID cards, social security numbers and other forms of identification, which we will not specify at the moment," Barbora Petrová of the Labour Ministry's press department told The Slovak Spectator.

If it turns out that a citizen's application to quit the second pillar has been forged, the applicant's savings will be returned to the original pension saving account, Petrová said.

"We responded to citizens' demands with great flexibility," Petrová said. "When they entered the second pillar they did not need to have their signature authorised and thus we wanted to make it as easy as possible for the citizens to decide."

According to Petrová, the change especially benefits people who want to quit the system but live in remote areas and would have to take a day off in order to go to a notary and have their signature authorised.

After all, there is also a notary fee for authorising signatures, Petrová added.

Notaries usually charge a maximum of Sk50 to authorise a signature.

Peter Socha, head of the Association of Pension Management Companies, said that the government had previously decided to require an authorised signature in order to assure the security of people's savings.

Socha told the Aktualne.sk news website that there have been cases where family members have decided on the fate of the savings of a relative who had been saving in the second pillar, but without the relative's approval.

The opposition also objected to the government fast-tracking the bill and thus preventing a thorough inter-departmental review. The Labour Ministry submitted the legislation for inter-departmental review on February 8 and the cabinet passed the draft on February 11. However, the government denies any breach of procedural protocol.

The government produced the bill only a couple of days after Prime Minister Robert Fico told parliament that the second pillar is advantageous only for people who earn more than Sk29,000 a month and who would be saving for their pension for at least 25 to 30 years. These criteria would leave only about 230,000 savers, the daily Sme reported.

The Labour Ministry has not confirmed the prime minister's claims.

Fico has never hid his objection to the second pillar, which he has often labelled 'risky'. Last year, Fico compared pension fund administration companies to the unlicensed deposit companies whose ill-fated pyramid schemes stripped more than 100,000 Slovak clients of a total of Sk14 billion (€418.1 million) a couple of years ago.

The government cannot guarantee that the pension fund administration companies will not end up similar to the situation with these unlicensed deposit companies, Fico said.

"Out of the twelve Latin American countries that instated the so-called Chinese model of capitalization, seven have already abandoned these reforms," Fico told the public service STV on February 8.

The Labour Ministry assumes that by the end of June, 30,000 people might have quit the second pillar.

The ministry is not preparing any special campaign.

"Citizens are being informed through the electronic and print media, and booklets about pension saving should make their decision easier," said Petrová.

The total number of savers in the second pillar reached over 1.56 million by the end of last year.

A total of 4,904 people left the second pillar between January 1 and February 4 of this year and private pension fund management companies have already returned these clients' savings. Over the same period, 1,326 new clients joined the second pillar.

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