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Slovakia set to lower second pillar contributions, backtrack on reforms

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  • Slovakia set to lower second pillar contributions, backtrack on reforms

SLOVAKIA - The re-election of former prime minister Robert Fico is likely to cause renewed changes to Slovakia's second pillar, with less money diverted from social insurance contributions.

Following elections earlier this year, the social democratic party (Smer-SD) regained a majority and Fico was re-appointed prime minister in April, having already served as prime minister from 2006 to 2010.

He has now issued a draft bill shifting some of the money from the second pillar to the first pillar.

Currently, Slovaks pay 18% in social insurance contributions which are split evenly between the first and the second pillar.

Commenting on the draft bill, former ING Slovakia head of pensions Viktor Kouril said: "From September probably only 4% will go to pillar II."

Kouril, since January chief executive of pension administration consultancy Zatopek, expects further reforms, most likely including a return to guarantees - previously granted by pension funds and abolished by the preceeding government only last autumn.

In September last year, Kouril had noted that the changes were the only the ruling coalition's policy, failing to include the viewpoints of other political parties.

He added at the time: "We fear that, if the government changes, further changes into the second pillar could be expected, which definitely would not help to maintain the trustworthiness of the system."

Now he expected fund mergers to occur, as well as the establishment of new non-guarantee funds, under the new legislation.

In a statement to the International Monetary Fund (IMF), the new Slovak government had noted that an actuarial study of the impact of the reform would be undertaken.

The amendments will also include changes to the first pillar such as linking its retirement age to demographic trends, as well as changing the rate of pension indexation, and limiting the accrual of pension benefits for higher earners.

The IMF in turn noted "frequent legislative changes to pension funds regulation should be avoided to promote regulatory stability conducive to developing long-term investment strategies".

It called on the government to "relax investment restrictions for the second pillar pension funds further to enlarge the investor base for domestic equity and debt securities".

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