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Pension battles far from finished

With retirement age victory, coalition eyes reforms' second stage

By Paul Voosen
Staff Writer, The Prague Post
July 2nd, 2008 issue

Fresh from its victory passing the first stage of the pension reforms through the Chamber of Deputies, the ruling coalition promises to tackle the reforms’ second part early next year.
While the first wave of reforms focused on increasing the national retirement age, the next iteration will be aimed at the funding of the pension system, Finance Minister Miroslav Kalousek (KDU-CSL) and Labor and Social Affairs Minister Petr Nečas (ODS) told reporters after a Cabinet meeting June 27.
The bill, which is currently being drafted and could reach its consultation phase by the end of September, will revise the regulations overseeing the state’s pension funds as well as private pension funds, the latter of which are expected to receive a boost from the business-friendly, center-right government.
According to a draft already prepared, the bill would transform current pension funds by divorcing the funds’ private assets from the savings they manage. In this way, pensioners would not lose their money even in the event of bankruptcy, Kalousek said.
The government wants to encourage increased private pension contributions by providing tax relief to both clients of pension funds and companies matching such contributions.
It is widely agreed by experts that the state’s current pension system would go into debt if not reformed, though solutions to the problem differ on a partisan basis. For future retirees, state pensions should provide four-fifths of their income, with the remainder drawn from private funds, Nečas said.
It’s an open question whether the governing coalition will be able to muster the political support to pass the reforms’ second stage, given the fraught process that saw the first stage barely pass the Chamber of Deputies in its third reading June 25.
That bill, which still has to be approved by the Senate and signed into law by President Václav Klaus, will gradually increase the country’s retirement age to 65 by 2030. The retirement age will apply equally to men and women, except for mothers with more than one child, who can retire in their early 60s.
The opposition Social Democrats (ČSSD) and trade unions strongly opposed the age increase, with unions calling for special exemptions for careers that cause particular physical strain, such as coal mining.
Citing the lack of broad political support, the shadow labor minister, Zdeněk Škromach (ČSSD), has previously said that any new government led by the Social Democrats would feel within its right to reverse the ODS-led reforms.
The governing coalition has divided its reforms into three total stages. The third stage envisions allowing citizens to route their state pension payments to private funds.

Paul Voosen can be reached at pvoosen@praguepost.com


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