Few Slovaks are making use of the possibility to exit the second pillar, according to Barbara Ottawa
At the beginning of 2012, it looked like Slovakia was travelling the same path as
other CEE countries: The social democratic party SMER under Robert Fico, re-elected in April last year, repealed the changes to the second pillar the previous conservative government, which had only been in office for two years, had introduced.
Explaining the step in a statement issued after the parliamentary vote, Fico claimed the second pillar had returned about 18% less than the first pillar and that the results had been “disastrous”.
For 2011, the balanced portfolios – which are part of a life-cycle model applied according to the members’ age – over all six Slovak pension funds in the system returned around 1.5% on average.
Despite protest and criticism from the opposition parties, SMER used its parliamentary majority to pass the new legislation, which, among other things, cut contributions to the second pillar from 9% to 4% from September 2012.
Further, Slovaks were given a five month opt-out window starting that month.
However, Victor Kouril, executive officer at Slovak pension consultancy Zatopek, told IPE that “just a few thousand members” had left the second pillar by mid-November which amounts to “below 1% of participants”.
Therefore, “we do not see a major drop in assets as the number of leaving clients is relatively small”, he added.
Kouril explained that the “increase will be much slower than calculated in the business cases” due to decreased contributions.
Despite this he does not see consolidation in the second pillar ahead, because “prices at which a pension fund could be sold today are probably lower than the original investments so a sale would mean booking of losses for the mother company”.
The bill also introduced a new fee structure which sees “the basic fee for keeping and managing a retirement account dropping from 1% to 0.75%”, Stanislav Žofčák, head of the Slovak pension fund association ADSS, explained.
The management fee remains at 0.3% per annum for guaranteed funds and increases in unguaranteed funds to 0.6%.
These changes became effective as of January but already in late 2012, Kouril noted a “continuation of strict cost control”, as balance sheets “will be hurt by the new changes”.
Kouril, when he still was managing director at ING’s Slovak pension fund, had warned of a lack of consensus in autumn 2011, when the previous government announced the pension reform: “We fear that, if the government changes, further changes to the second pillar could be expected, which definitely would not help to maintain the trustworthiness of the system.”