CZECH REPUBLIC -- A party in the Czech coalition government has incorporated elements of a controversial proposal from Dutch financial group ING into its policy for a reform of the Czech pensions system.
The ING scheme, which is expected to promoted in other eastern European countries, is for people who have children to receive more money in a pension than the childless.
Unveiling his party’s position backing this proposal, Christian Democrat (KDU-CSL) president Miroslav Kalousek told a Prague press conference on Friday that the current pensions system was economically unviable and unfair. “Both parents and childless people are contributing the same amount but it is the parents who are bringing up the future payers of contributions,” he said.
The KDU-CSL is now recommending the proposal to a cross-party commission, which is trying to find consensus on pension reform ahead of next year’s general election. ING is hoping the main opposition party, the conservative Civic Democrats (ODS), will also sign up to its model next month at a presentation it is giving but admits the social democrats (CSSD), the leading party in the governing coalition, has so far shown no interest in the proposal.
ING’s senior project manager for the reform, James Hyzl, co-authored the plan with Jiri Rusnok, the former Czech finance minister who is executive advisor on Czech and Slovak pensions to the ING management committee and the current president of the Czech Association of Pension Funds.
The Hyzl-Rusnok model has designed a first pillar to which all individuals contribute but that pays out the maximum benefit to individuals having three or more children, while those with one or two children receive a discounted benefit and the childless receiving no benefit.
The other part of the model requires the Czech government to set up a compulsory-funded second pillar.
“Those with few or no children would receive benefits from a fully funded mandatory second pillar into which childless individuals would pay a full amount, those with one or two children would pay a discounted amount and those with three or more children would be exempt from making payments of an absolute minimum,” said Hyzl.
The contribution differences are a compensation for the costs of parenting, he added. “And the benefits for ‘parents’ are not confined to biological parents, but are also extended to adoptive and foster parents. The differences only apply during a child’s economic dependency on its parents.”
The model removes the PAYG system’s demographic risks and so it is economically sustainable and it allows individuals to decide how they want to secure themselves for retirement, he explains. “The system is transparent and flexible. It also removes such inequities currently seen with PAYG where low income people with children subsidise childless high earners.”