CZECH REPUBLIC - The IMF has said the proposed reform of the Czech pensions system should ease the burden on the country’s finances in the long run, but warns that the short-term impact will be hard to determine.
The reform - scheduled to come into effect in 2013 - will see the introduction of an opt-out second pillar, which will receive 3 percentage points of the social security contribution, which is currently 28% of wages.
Participants will also have to make contributions amounting to 2 percentage points of the total social security payment.
In the run-up to the introduction of the new pillar, the Czech government has increased the retirement age, reduced disability pensions and amended the first pillar, reforms the IMF welcomed as a “resolute” implementation of reform.
It said the changes had already improved the system’s sustainability “considerably”, cutting long-term deficits in the first pillar, pay-as-you-go scheme from 4-5% to 2% of GDP in 2040-2060.
However, the IMF also pointed out that, if the defined contribution component of the system is introduced as planned in 2013 - with associated revenue shortfalls for the budget - the unchanged nominal targets as defined by the Excessive Deficit Procedure could suggest “an overly tight fiscal stance” that year, constituting a total structural adjustment of 0.5% of GDP.
The IMF said Czech authorities had recognised this fact, but noted the “need to weigh the short-term impact against the longer-term benefits” of instituting the second pillar - giving workers more control over their retirement plans, for example.
It estimated the cost of introducing the second pillar at more than CZK10bn (€400m) in 2013, or roughly 0.25% of GDP.
For 2014 and 2015, the revenue shortfalls will most likely amount to another CZK5bn each.
But the IMF also stressed that there was “significant uncertainty” around these estimates, as they depended on “behavioural assumptions”.