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Fico debuts minimum pension plan

PENSIONERS will be guaranteed a minimum pension that should keep them off welfare, according to a change proposed by Prime Minister Robert Fico’s government. 

(Source: Sme)

While the idea must still go before the full parliament, the Smer party’s outright majority makes it a virtual certainty to pass and come as part of the 15-measure, €250-million first social package planned by the government.

“We want to guarantee with it [the minimum pension] that a person who has worked for a certain number of years will not have to depend on the social safety net,” Fico said, as quoted by the SITA newswire, after his cabinet adopted the draft legislation introducing the minimum pension on February 18.

Based on the draft bill on social insurance, the social security provider Sociálna Poisťovňa will pay the minimum pension to everyone who has worked and paid old-age pension insurance for at least 30 years and reached the retirement age.

The minimum guaranteed pension is proposed to be 136 percent of the subsistence level, and that it should be increased by 2 percentage points with each worked year and by 3 percentage points with 40 years of labour. This year the subsistence level is €198 and thus the minimum pension will be €269.50 while the minimum for long-time workers should exceed €300.

As the subsistence level – a minimal level of incomes for a private individual not to slip into material need – is valorised annually, the minimum pension will grow proportionately over the years too.

“This [the minimum pension] is a motivating element for prospects of the future; in order that people are interested in working,” said Ján Richter, Minister of Labour, Social Affairs and Family, whose ministry prepared the draft bill, adding that this should distinguish between those who worked and paid payroll taxes and those who did not work and lived from social benefits.

If adopted by parliament, the policy would kick in July 1. The minimum pension will be paid out to recipients of regular old-age pensions, early old-age pensions as well as disability pensions.

The measure will increase pensions for about 75,000 of the country’s 1 million pensioners this year. It will cost about €16.4 million this year and €31 million in 2016.

Adoption of the guaranteed minimum pension would prevent pensioners with low pensions from the need to apply at the local office of labour, social affairs and family for material need aid. This is considered as administratively demanding as well as humiliating for some pensioners. Now, about 3,200 pensioners receive this social aid, which is about €60 per month, the Hospodárske Noviny economic daily wrote.

“For us it is decisive that the situation of those with the lowest pensions should improve,” Ján Lipiansky, chairman of the Association of Pensioners in Slovakia, told the public broadcaster Slovak Radio.

Based on the current rules, when Sociálna Poisťovňa calculates, based on earnings thus far for a future pensioner, a pension lower than €200, he or she can apply at the local office of labour, social affairs and family for the material need aid. But when assessing whether such an applicant qualifies for this benefit, incomes of the whole family in which he or she lives, as well as his or her assets are taken into consideration and thus it often happens that such a person fails to receive aid. When assessed according to the new law, the applicant will be taken as an individual person and will receive money only from one institution – Sociálna Poisťovňa.

After the new legislation is adopted a pensioner with entitlement for the minimum pension will get from €10-€23 more than if he receives the pension and the material need aid, SITA wrote.

The opposition welcomes the guarantee of a minimum pension but sees it as too generous.

“There is a question whether all deserve the increase because there are also pensioners who did not generate a lot of pension insurance by their work and for whom the state paid pension insurance for years,” former labour minister Jozef Mihál from Freedom and Solidarity party told the Slovak Radio.

His criticism is directed also towards those self-employed who pay minimum old-age pension insurance premiums. Peter Goliaš, the head of the economic think tank INEKO, agrees.

“In terms of distinguishing receivers of social benefits from those working, it [the introduction of the minimum pension] is a right step,” Goliaš said as cited by the online edition of the Sme daily, “But it is important to find an optimum also for the self-employed in order that they too are motivated to pay into state coffers.”

Payment of the minimum levies by the self-employed has been highly criticised by the cabinet as well as the Labour Ministry which warned that this will reflect in lower sick leaves as well as pensions. By the introduction of the minimum pension the self-employed will be not motivated to pay more.

Last year Sociálna Poisťovňa registered 156,000 self-employed out of total 231,400 who paid minimum levies.

It is believed that many of them optimise their costs for doing business to reduce levies to the lowest possible level. As a result those Slovaks who worked as self-employed since 1991 and paid compulsory old-age insurance from the minimum calculation base, now receive monthly pensions between €200 and €220, the Aktualne.sk news website wrote. This is deep below the poverty line, which was €337 in Slovakia in 2013.

According to Goliaš, the state should also start thinking about cancellation of the Christmas benefit for pensions which cost state coffers €80 million annually. The non-governmental think tank Institute of Economic and Social Studies (INESS) agrees.

“This is not a systematic aid,” Radovan Ďurana of INESS told Hospodárske Noviny, adding that this flat benefit does not take into consideration the real situation of pensioners.

The opposition Most-Híd perceives guaranteeing of the minimum pension as it is proposed as short-sighted and not taking into consideration future generations.

“With respect to current demographic forecasts the average pension might oscillate somewhere around the subsistence level or even lower around 2050,” Most-Híd writes in its stance.

Most-Híd believes that it is necessary to set right the bad setting of the two-pillar old-age pension system, halt the inadequate shortening of pensions from the first, pay-as-you-go-pillar and to change the way of payment of money from the second, private, pension pillar.

“Otherwise minimum pensions, as proposed today by Smer, will only be fantasy for today’s youth,” Most-Híd writes in its stance.

Pensioners in Slovakia

The average old-age monthly pension in Slovakia was €400.20 at the end of 2014, up €9.70 compared with the end of 2013, SITA reported, citing data from Sociálna Poisťovňa. A total of more than 1 million people received this kind of pension. Receivers of early old age and disability pensions exceeded 254,000.

Results of a survey of the investment firm Natixis setting a ranking of the quality of life of pensioners indicates that the situation of Slovak pensioners is worsening, Hospodárske Noviny wrote. Out of 150 countries Slovakia ranked 28th for retirement security while its position worsened for the second consecutive year. Compared with 2013, Slovakia slipped by 10 positions.

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