Pensions only part of the road to retirement reform

The road to pension reform will be long, hard and, based on comments Nov. 21 and 22 by the prime minister and finance minister, uncertain. But a working social pension system isn't the whole story, as the younger generation still lacks a complete understanding of what their retirement will look like, a recent survey found.

Currently, "94 percent of retirement income comes from the state. That's a very unique situation," said Jana Gabrielová, business director at ČSOB Pension Fund. Her division commissioned a survey by Factum Invenio to gauge the attitudes of Czechs toward retirement and their current behaviors. More than 700 respondents between the ages of 18 and 60 answered the survey.

"People still hold on to the idea that the state will take care of them when they retire. They were used to that during communism. It's essential that this idea is eliminated from the minds of younger generations who might have picked this up from their parents."

The survey highlighted the disparity between what people want and expect from retirement and what they're actually entitled to from the state. Of the respondents, 55 percent believe the pension system will be able to provide a sufficient pension for them. On average, Czechs would be happy with 17,500 Kč ($975) per month, but today's average pension is only 10,065 Kč. In order to make up the difference, a worker would have to begin saving 2,500 Kč per month at the age of 35. The reality, however, is an average monthly savings of 806 Kč, the survey showed.

The government is currently on track to unveil a comprehensive reform package by either February or March of next year, Prime Minister Petr Nečas said Nov. 22. The government must agree upon the package by the middle of 2011 if the coalition is to survive, Finance Minister Miroslav Kalousek said he doesn't expect the reforms to actually take effect until 2013.

"Counting on it to take effect Jan. 1, 2012, would be too risky," he said on a Czech television show Nov. 21.

Kalousek's insistence that the coalition must agree on pension reform seems already to have been challenged, however, as coalition party Public Affairs (VV) unveiled its own pension proposal Nov. 20 that counters a previous proposal to raise the retirement age and increase the lower VAT rate.

Pension reform will begin to have the biggest impact on people who are currently in their mid-30s, who will need additional financial education, Gabrielová added.

"The government informs the population about the necessity of pension savings, but it would be wrong to think that's enough. Financial institutions ought to help the state," she said. "People in their 30s should change their attitude toward saving for retirement. The state pension will not be enough for them to have a decent retirement. But how much should they save, and when to start saving, has to come from financial education."

Claire Compton can be reached at
ccompton@praguepost.com