The Czech second-pillar pensions system is at risk following the announcement of its actual termination as of 2016 by the new Czech Labor and Social Affairs Minister Michaela Marksova-Tominova. One day after the new Czech government’s swearing in, Ms. Marksova said she would initiate a new pension reform based on the agreement between the coalition parties ANO and the Christian Democrats (KDU-ČSL) on the merger of the funds accumulated in second-pillar accounts with the pension system’s third pillar. In short, the move would see people’s voluntary pension savings annexed to their compulsory social insurance.
The now potentially short-lived second-pillar formed a crucial part of the pension reform carried out by the previous right-wing government as a way to stabilize the state’s pay-as-you-go pension insurance system afflicted by the ageing of theCzech population. Since people's participation in the second pillar is voluntary, its results have been bellow expectation. By the end of 2013, only some 84,000 people had joined it. By comparison, the third pillar has 5 million members.
The closure of the second pillar is highly controversial. Pavel Jirák, head of the Komerční banka’s Pension Society, stressed that when deposited in a client's account, money becomes private property. According to some lawyers, claiming its return would amount to its nationalization. According to daily Mlada frontá Dnes (MfD)’s estimation, Czechs saved about 350 million Kč within the second pillar last year, 200 million of which was transferred to it from the state system. This is a negligible sum when compared with the 330 billion Kč of social insurance the state collected last year, the paper writes.
The government will now propose the reform to all political parties, economists, employers, trade unions and other stakeholders in order to devise a transfer plan. The coalition agreement can count on the support of a team of politicians and experts to draft "changes to the taxation of labor and to the pension system" that would take effect as from 2017.
Please read the Investment & Pensions Europe article here.