CZECH REPUBLIC - The proposed second pillar in the Czech Republic will help put the country's pension system on a sustainable footing despite being voluntary, according to the IMF.
In an assessment of the government's proposals, the IMF said market effects woud help the second pillar grow despite its being voluntary - as well as widely criticised.
The IMF added: "In the long run, the pressure on PAYG financing is likely to rise, as high wage earners are more likely to opt out of the redistributive first pillar."
Under government proposals, people will be given the chance to divert 3% of their social contribution to the second pillar.
The IMF said an efficient cost and fee structure for the new funded system would be crucial to ensure the stability of the second pillar.
It welcomed the unification of VAT as an instrument to finance the reform, as taxing basic goods at a reduced rate is a "less efficient way to subsidise low-income households than direct means-tested based support".
The IMF also urged the Czech government to extend reforms of the first pillar to ensure its long-term sustainability.
The Czech government had explained to the IMF that it had been impossible to get widespread support for a mandatory second pillar, given the "negative experience with defined contribution plans in other countries".
Another issue the Czech government will have to deal with is the IORP directive, which, according to the European Commission, has not been fully implemented yet.