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Expert commission pressures Czech government on second pillar

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  • Expert commission pressures Czech government on second pillar

CZECH REPUBLIC - The chief demand of a final report drafted by an expert commission on the Czech pension system has been the introduction of a mandatory second pillar.

The panel of experts described the current pension system as "undiversified" and a long-term risk for both the state and the individual.

"The best time for a decision on a pension reform has already passed," it added. "There is no time to lose."

Meanwhile, newly appointed Czech prime minister Petra Necas confirmed he had already started talks on the pension reform with union representatives, but he declined to provide any details.

In 2004, a commission with a similar make-up of pension funds, industry representatives and government financial experts urged the government to reform the retirement system.

In the most recent report, most commission members agreed the introduction of a funded second pillar was of the utmost importance, yet they differed on the details.

Most members called for a mandatory second pillar, with no opting-out, into which 3 percentage points of the current social contribution rate (23% of gross salary) would be diverted.

Instead of a state guarantee, the experts suggested participants have an option to choose a fund that invests in Czech government bonds only.

All those under 40 years of age would have to join the second pillar when it is set up, while the others would remain in the first pillar.

Only a minority on the expert board said they would like to see the introduction of a voluntary second pillar.

Up to 3 percentage points from the contributions to the first pillar would be diverted into a pension fund if the participants made a similar contribution themselves.

Part of this suggestion would also be to transfer third-pillar savings to the second pillar for those who joined the new funded retirement provision.
 

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