PensionsEurope has slammed governments in Central and Eastern Europe that have begun dismantling their second-pillar systems, warning of poverty and damage to their economies.

The contentious issue has long caused concern among second-pillar advocators, with funds being raided to prop-up government books, or help alleviated under-capitalised first-pillar systems.

It also called on the Commission to intervene, as concerns over contagion of second-pillar raiding increase as time goes on. 

In recent years, the government in Hungary effectively closed down the country’s funded pensions pillar by indefinitely extending a freeze on contributions, resulting in the closing down of several schemes due to cost pressures.

This continued as Poland, which saw its president sign off on a Bill, radically changing its second pillar due to what the government described as the “ballooning costs” of the system.

The payment of retirement funds to members would be taken over by the country’s first-pillar system, with all Polish sovereign investments transferred earlier this year.

Further to this, the Czech Republic is to close its second-pillar system by 2016, as one of the prime minister’s long-standing objectives, which would see the pillars merged.

After years of decline in second-pillar provision across the area, PensionsEurope said this – particularly in light of a review hinted at by the Romanian government – was getting out of hand.

It said the transfer of assets was detrimental to longer-term economic and social sustainability, and that more funded retirement provision was needed, not less.

Chair of the lobby group, Joanne Segars, called the developments worrying and said the European Commission could do more, suggesting a CEE focus would be more “value added” than its current work.

She said: “There are some quite worrying developments going on there, and they are the sort of ‘value added’ issues the Commission used to pay attention to.

“Severe demographic challenges cannot be countered by the public finances on the long run. These reforms have severe consequences, notably for old-age poverty in the near future, and undermine the trust people have in retirement savings.”

Secretary-general Matti Leppälä said the long-term damage, given the equity and fixed income investments from second-pillar funds, were serious.

“Member states will be damaged on the long run,” he said. “There is a need to act now to prevent more damage, for both the future pensioners of member states and the EU economy.”

The OECD has also spoken out against the reforms, suggesting Poland’s move to nationalise the second pillar undermines trust in pensions, and investment restrictions would cut income replacement rates.

Poland’s reform are also set to be challenged by the employers confederation on the belief it breaches several articles of the constitution.