The deteriorating state of the country's pension system is raising the eyebrows of many Czech citizens and international economic agencies. Earlier this summer, a group of experts known as Bezdek's Commission, assembled by the government, released a report on the state of the pension system and ways to improve it. The commission indicated that the current system is likely to collapse within 20 years — which some politicians see as an excuse to put off badly needed reform. However, Ivo Folty´n, general director and CEO of Penzijní fond Ceské pojistovny says such a conclusion is false. Folty´n is a former member of the Bezdek's Commission. "Every year of hesitating [to carry out pension reform] brings about a sharp increase in the total cost of the reform," he warns. In an interview with The Prague Post, Folty´n discusses the steps the country must take to establish a viable system that will work and last.

Given the deterioration of the pension system, do you think Czechs have good reason to worry about retirement more than other EU citizens?

Certain worries are, unfortunately, justified. Demographics are unfavorable and have an effect on the sphere of public funds and the entire economy. The Czech Republic is the last country in the Central European region that has not reformed its state pension system. The adoption of necessary reforms has put countries such as Hungary, Poland or Slovakia well ahead of us.

n Bezdek's Commission recently reported that the country's pension system could collapse within 20 years. Do you agree that such a conclusion gives politicians an excuse to delay reform?

Reform in such a socially sensitive field requires political courage. Bezdek's Commission, of which I was a member, had the task of thoroughly analyzing the current system and providing variant solutions. The analysis clearly showed that reform is needed. Thanks to the redirection of part of unemployment insurance payments to social insurance, and thanks to the fact that social insurance payments are among the highest in Europe, the pension system can at first glance seem stabilized, if pensions undergo only the minimal valorization required by law. I need to emphasize that only minimal valorization as set by the law can be taken, but it never happened as far as I know. Furthermore, no one who claims the pension system is stabilized is willing to say at the same time that the average pension will drastically sink over the [next 20-year] period. Every year of hesitating [to carry out reform] brings about a sharp increase in the total cost of reform. Hopefully, politicians are aware of that.

Ă Although the European Commission has emphasized the need to carry out pension reform, none of the previous cabinets took more steps than establishing expert commissions. Isn't the establishment of such commissions just a tool for the government to show the people that it is paying attention to pension system?

I can only repeat what I've said. Reform requires political courage and also an agreement among [major political] parties. Our expert commission analyzed different scenarios and the suggestions filed by various parties in order to give politicians clear arguments for decision making. It would be unfortunate if the qualified and complex conclusions made by the expert team were in vain, and another commission would be asked to do the same work from scratch after the next general elections.

Ő The reason for postponing pension reform is undoubtedly the negative impact it would have on voters. What are the key measures that effective reform needs to implement?

I suppose that reform must enable a shift in responsibility for future pensions to citizens. Apart from the state, people will need to rely on their savings, be it mandatory or voluntary. This will be a new thing here. At the same time, clear rules [of reform] must be defined, so that the switch to a new pension system doesn't harm a particular age group.

The question is what the real negative impact will be. It's essential to point out that it's not reform itself that has negative impacts, but rather the current demographic development and its effects on the current pay-as-you-go pension system. The continued hesitation of politicians [to carry out reform] and their possible inability to agree on a solution will also be very negative.

Œ Prime Minister Jirí Paroubek said recently that the booming natality in this country could help fix the pension system in the future. Does the government provide sufficient incentives to boost the birthrate in this country?

The current slight increase of the birthrate is due to a very low base in the past 10 years. As of now, it does not indicate any long-term trend and certainly does not provide solutions to the current woes of the pension system. Demographic development has been affected by many factors and it's unlikely that state intervention alone could bring about a permanent increase in natality. Still, I believe the government could be more active and should somehow interconnect pensions with people's willingness to have babies. For example, a proposal submitted by the KDU-CSL [Christian Democrats] includes tax relief for families with children. People who invest in raising children — future contributors to the pension system – should be recompensed by lower payments to state funds.

œ Although women have the privilege of retiring earlier than men, depending on the number of children raised, their earlier retirement and lower amount of payments to the pension system reduces their pensions. In that case, could early retirement be a privilege?

The provision that women can retire earlier must remain intact since it is a significant benefit. Mothers who are raising children should have free choice whether they prefer to retire earlier or continue to work. Women who retire earlier are only seemingly disadvantaged. Thanks to the higher average life expectancy of women, they draw money from state coffers longer than men.

– Despite the negative prognosis about the developments in the country's pension system, a large number of Czechs still do not have any private pension accounts. Shouldn't pension funds more effectively take advantage of the current low interest rates to attract new clients?

I cannot agree with the statement that only a small portion of Czechs has private pension insurance. Today, over 3.1 million people are contributing savings to their pensions, which amounts to more than 60 percent of the working people in this country. This is a unique penetration in the field of voluntary savings. In addition, the pace of increase in the number of pension fund clients accelerated this year. While [pension funds'] client base rose 8 percent last year, the number doubled this year. So the problem is rather the level of regular payments to [private pension accounts]. To make it simple, we do save, but if we want to generate sufficient funds for retirement, we need to increase our regular payments.

— When formulating his opinions on pension reform, President Václav Klaus mentioned the need to transform the scheme of the pension system from an insurance model to a savings one. Could this transformation help break through the psychological barriers many people have to making payments to pension funds?

I think the psychological barrier of many people lies in their worries that they would be obliged to entrust their money to someone else. The so-called opt-out system suggested by the Christian Democrats gives people a choice where they want to direct their social insurance payments — whether they want to pay only into state funds or whether they want to use part of the payment to pay private pension funds. In other words, a citizen should have the right to decide to whom he will entrust his money and his future.

" Is tighter competition among private pension funds operating in this country likely to happen in the short term? Could more foreign funds emerge on the market?

If we talk about the current system of pension insurance, strong competition already exists and the market is divided. The current competition forces [pension] funds to cut their expenses to effectively maintain their clients' deposits. A new player entering the market would not just merge with an existing fund, but be in a very complicated position [because the market is so divided.] However, should changes to the current pension system lead toward establishing mandatory payments to [private] funds, we can certainly expect arrivals of a significant number of foreign financial companies.

" At the end of the day, let me ask you a personal question. What are your feelings about your own retirement?