Slovakian government sets terms for re-opening of second-pillar system
Slovakia’s government has rushed through legislation establishing the terms for re-opening the second pillar.
During the three-month window beginning 15 March, the 1.5m-odd members of the system can decide whether to leave, in which case all their savings will be transferred to Sociálna poisťovňa, Slovakia’s Social Insurance Agency.
Unlike the Polish reforms of 2014, where the first pillar was the automatic default for second-pillar members who failed to declare their intentions, Slovak fund members will have to, as in the previous three re-openings, file a request to leave.
In the last one, which ended in January 2013, some 90,000 members were sufficiently convinced to leave.
The government argues that some two-thirds of second-pillar members would be better off, in terms of future retirement benefits, by saving all their contributions in the first pillar.
The industry disagrees.
Miroslav Kotov, head of the investment department at Allianz-Slovenska DSS, told IPE: “The two-pillar pension system is suitable for everybody, as it diversifies risks of demographics in Slovakia.
“Nobody knows what pensions would be available from one pillar system in coming decades. The first pillar is in every year deficit and must borrow money to cover its liabilities even now.”
Jiří Čapek, general manager at ING DSS, elaborated that the government’s reasoning applied to only a small number of specific cases – older workers earning below the monthly minimum wage, those who were members for less than five years before retirement, and the unemployed who have unable to contribute to the second pillar for any length of time.
Čapek does not subscribe to the view that a full transfer to the first pillar guarantees a higher pension.
“It’s important to draw to the attention of second-pillar savers the fact money in the accounts of those who decide to leave it will be moved to the account of the Social Insurance Agency, and not to their personal account (as many people think),” he said.
“The monies of the people who leave the second pillar will be used for present pensioners. The second pillar also offers members other advantages, such as personal ownership of their pension savings, and their [ability to be inherited].”
The industry also believes the current focus on the low payouts for the first tranche of retirees eligible for second-pillar pensions is misleading.
According to Sociálna poisťovňa, as of 4 February, 221 members had applied for a second-pillar pension, with 14 signing a contract.
“For clients who were 10 years in the second pillar and are retiring now, the first pillar covers more than 90% of their pensions,” Kotov said.
“The second pillar should cover the remaining 10%. Therefore, the difference between the two pensions is only a few euros per month.”