SLOVAKIA - The Slovak president Rudolf Schuster has vetoed the bill on pension fund savings, which is a key part of the prepared pension reform, the presidential press department announced.

According to Schuster, who made the decision at the end of last week, increasing pensions by four percent this year as proposed in the bill drafted by the government is not sufficient.

Schuster is proposing pensions be increased by six to eight percent as of February 2004.

"This would increase the deficit of the state social insurer Socialna poistovna by an additional three billion crowns and would endanger another increase of pensions planned for December," said Katarina Belicka of the Slovak Labor Ministry, adding she believes the Parliament will over-rule Schuster's veto later this month.

The bill on pension fund savings was approved by the Parliament in December.

According to the law introducing mandatory contributions to pension funds, Slovaks should contribute nine percent of their gross salaries to their personal pension accounts with one of three private pension funds, and the same amount to Socialna poistovna to the pay-as-you-go scheme as of

Overall, employee payments to the social system will not change. The only difference is that nine percent will flow into a private pension fund. The new system will be obligatory for all Slovaks who enter the labour market and those who voluntarily sign in by mid-2006.

The pension reform was kicked off in October when the Parliament approved the law on social insurance. According to this law, old-age pensions will depend on the number of years worked and contributions to the pension insurance system. The law also abolished the minimum state-guaranteed pension and eliminated the maximum allowed pension level.

The pension reform counts on retirement age to be gradually raised to 62 years for both men and women. Currently, men in Slovakia retire at the age of 60, and women without children retire at 57.

Changing demographics, a trend similar to other countries, is putting more pressure on the social security system in Slovakia. As a results, more Slovaks started to save under supplementary pension insurance. Half a million of the 5.4 million Slovaks were saving with private pension funds in 2003, an increase by nearly 180,000 year on year.