EUROPE – The Czech Republic's second pillar has had an inauspicious start.

According to the Association of Pension Funds of the Czech Republic, the second pillar, which launched this year, accumulated 74,573 members as of 1 July, the closing date for those aged 35 years and over.

As expected, take-up accelerated in June, when 27,181 signed up.

Some 65.5% are over 35 years, with men accounting for 57% of the membership.

The numbers are nevertheless well below the expectation of around 500,000.

Pavel Jirák, chief executive and chairman of the board at KB Pension company, said: "This is a big disappointment for all the stakeholders: the outgoing government, the pension companies and their shareholders, and those who believed in the pension reform."

Dynamic funds accounted for the largest share, 44.3%, followed by balanced funds (34.5%), conservative funds (19.5%) and a tiny 1.7% for state bond funds.

This appears to mark a shift in a generally risk-averse savings culture.

By contrast, the revamped third pillar – which as of November 2012 closed off the guaranteed no-loss return and largely government bond weighted funds to new members – has seen little appetite for the non-guaranteed 'participation' funds that replaced them.

Jirák attributed the second-pillar fund selection primarily to the long-term investment horizon of participants – in KB's case, around 50% are below 40, with up to 30 years' of savings to accumulate before retirement – and to a lesser degree the low management fees that can be charged by the state-bond funds.

"We have been selling dynamic, balance and conservative funds [which account for one-third each of KB's fund share] together as a life-cycle investment strategy," he told IPE.

The biggest threat to the second pillar is political. The centre-right coalition government that introduced the system was forced to resign in June.

The replacement Cabinet, expected imminently, would govern at most until May 2014, after which general elections are expected, according to current polls, to return a centre-left government hostile to the second pillar.

This uncertainty was one of the reasons for the low take-up.

In July, outgoing finance minister Miroslav Kalousek proposed a series of legal amendments to make the second pillar more appealing and inclusive, including extending the maximum enrolment age to 40 years, providing more choices for pension inheritance and giving members the option after five years to opt out – currently, once they opt in, they cannot leave.

Compulsion is now a hot issue in neighbouring Poland, whose mandatory second pillar is by far the region's biggest, with 16.2m members and assets of PLN280.6bn (€64.9bn) as of the end of May, according to the Polish Financial Supervision Authority.

In late June, the Polish Ministries of |Finance, and Labour and Social Policy, presented a series of proposals overhauling the second pillar.

The options for discussion, alongside delegating the second-pillar payouts to the Social Insurance Institution (ZUS), include liquidating the pension funds' government bond investment to shrink the public debt, making participation voluntary and turning the current mandatory system into a voluntary one with additional employee contributions, as is the case in the Czech Republic.

On July 2, Polish premier Donald Tusk decided to double the minimum consultation period to two months – for the last Cabinet sitting in August – after which draft legislation will have to pass through the lower and upper chambers of parliament, and be signed off by the president.

Tusk did not rule out the possibility that the final law may well be different from his ministers' document.