Sunday, 20 April 2014

Czechs joining "second pillar" to get lower pension from state

9 January 2013

Prague, Jan 8 (CTK) - The Czechs who will join the newly- introduced pension reform and start transferring a part of their compulsory social contributions from the state pay-as-you-go system to private pension funds have to reckon with a lower pension from the state in the future, Tomas Machanec said Tuesday.

Machanec, head of the Labour and Social Affairs Ministry's social insurance section, said the participants in what is known as the pension system's new "second pillar" will see their state pension up to more than 10 percent lower compared to other pensioners.

These people's savings in funds will compensate for the gap, Machanec told CTK.

As from January 1, 2013, people can transfer 3 percentage points of their monthly social contributions to private pension funds on condition they add another two percent from their own money.

Deputy Finance Minister Radek Urban said hundreds of people have joined the second pillar of the pension system in the first week of the year.

"He who will have saved for all of his/her life, is to see his/her old-age pension, provided from the state pay-as-you go system about 15 percent lower. Those who will have saved for ten years are to see their state pension some 4 percent lower," Machanec said.

The government says the reform is advantageous for a half of Czech citizens.

According to the Institute for Democracy and Economic Analysis (IDEA), the reform would benefit a half of men and 30 percent of women. It is more advantageous for those with higher incomes.

Economic expert Jaroslav Vostatek, nevertheless, criticised the reform as disadvantageous for almost all. As a result of it, the state pension system will become short of money that it needs to pay out pensions, which will require raising all people's contributions to it, Vostatek said previously.

Referring to expert studies, Machanec said most of them agreed that the reform will benefit people with the median monthly gross pay, which was 21,184 crowns in the third quarter of 2012.

The advantage of the private pension savings will surface only after years of savings. The advantage of the savings is also that they can be inherited, unlike the state pension, Machanec said.

Urban said the state pensions are most likely to be gradually changed. They cannot be expected to change markedly to the better, he said, probably alluding to unfavourable demographic prospects linked to the population ageing.

People under 35 can join the second pillar anytime. Older people have to decide by June 2013.

Once joining the second pillar, a client cannot withdraw from it.

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