PENSION SYSTEMS ECONOMY
public sector may be expected to pay higher pensions in the future). FINANCIAL CRISIS OF 2008 TIME FOR RECONSIDERATIONS The economic crisis that struck the region in late 2008 and 2009 highlighted long neglected fiscal problems in all Visegrad countries. Rising health care expenditures, inefficient tax systems and a sudden drop in tax revenues widened fiscal deficits in all four countries. Hungary, the most vulnerable for a long time running, had to apply for a loan from the EU and IMF in 2009 and remains in an economic downturn. The Polish fiscal deficit quickly ballooned to 8% of GDP, and the government debt is coming dangerously close to the constitutionally set limit of 55% of GDP that would trigger massive spending cuts. Led by a government that has been long opposed to pension reform, Hungary has acted in ways that have shocked most observers. In 2010, the savings accumulated in pension funds – 10% of GDP in all – were “voluntary” returned to the state pension system, pension funds were dismantled and state dominance in the pension system was reestablished. The effects of this “anti-reform” are still difficult to quantify, as the government remains vague as to how exactly it plans to compensate workers for assets nationalized from pension funds. However, it is clear that the public pension expenditures will rise in the future by more than the 3% of GDP estimated in 2009, unless the government implements radical reforms within the state run pension system. Given the country’s worrisome demographic situation, Hungary is at its most exposed since the 1998 referendum.
The Polish reaction to the fiscal problems caused by the financial crisis was more measured, but radical nonetheless. The government reacquired two thirds of contributions that were sent to private pension funds, appropriating some 1% of yearly GDP. The government did not touch the assets of pension funds, but the funds now face a much slower build up of assets, so they will be able to pay lower pensions in the future. What is most important, however, is the uncertainty introduced by the government. It will be under severe fiscal pressure already in 2012 and 2013, and both workers and pension sector cannot be assured that the government will not seize transfers still directed to pension funds. The changes in the Slovak systems were minor in comparison to Poland and Hungary. The government extended the period during which workers could withdraw from the second pillar and made it voluntary for new labor-market entrants. The Czech Republic, however, reversed regional logic once more. Instead of pulling back from pension reform, in the midst of the financial crisis the government decidede to introduce a new kind of private pension fund that would collect a share of workers’ wages, invest them and then eventually pay pensions. The reform is more cautious than previous regional reforms, as it makes participation in the new system entirely voluntary and requires workers to co-invest in pension funds from their private sources. CONCLUSIONS: ELUSIVE CONVERGENCE ON A UNIVERSAL MODEL Twenty years of pension reforms in the Visegrad group have taught us that pension systems and reforms remain highly
idiosyncratic within the region. Until 2010, the Czech Republic seemed to be an outlier that refused to reform its pension system radically, instead relying on tight management of the state run pension system. While the strategy has mostly succeeded in limiting pension system expenses, it has done so primarily by lowering the benefits of future generations. In this sense, the Czech government’s tentative decision to introduce a partial and voluntary opt-out is long overdue. If implemented, it will make the Czech system similar to that of Slovakia and Poland. The Polish government likewise seems to be moving to this “new standard”, reducing the role of mandatory pension funds and unifying the retirement age for men and women at 67 years. Before a new universal system could have been established in the Visegrad group, Hungary moved sharply back, demolishing its 12-year-old reform and returning to the system based exclusively on state financing. It remains to be seen whether a future Hungarian government will reverse this move, and thereby return Hungary to the fold of countries with pension systems dominated by the government, but with the private sector playing an important role in providing old-age pensions to their pensioners. For the time being, the Visegrad pension landscape remains as heterogeneous as it has always been. The author is a Czech is Czech economist and blogger, assistant professor at Institute of Economic Studies at Faculty of Social Sciences of Charles University in Prague, currently an adjunct instructor at Georgetown University (Washington DC, USA).
LITERATURE – Barr, N. and P. Diamond (2009). Reforming Pensions, CESifo Working Paper 2523, January 2009, CESifo, Munich. – European Commission (2009) “Ageing Report: Economic and budgetary projections for the EU-27 member states”. European Economy 2/2009. – European Commission (2010) “Joint Report on Pensions” Commission Staff Working Document, Brussels, May 2010. – Holzmann, R.; M. Orenstein; and M. Rutkowski, ed. 2003. Pension Reform in Europe: Process and Progress. Washington, DC: World Bank. – Schneider, O. (2009): Political Economy of Pension Reforms in Europe, Czech Journal of Economics and Finance- Finance a úvěr 2009/4, pp.280-298 – Soto, M., B. Clements and F.Eich (2011): A Fiscal Indicator for Assessing First and Second Pillar Pension Reforms, IMF Staff Discussion Note, April 2011 – Velculescu D. (2010) "Some Uncomfortable Arithmetic Regarding Europe‘s Public Finances," IMF Working Papers 10/177, International Monetary Fund. – Wagner, H. (2005) “ Pension Reform in the New EU Member States – Will a Three-Pillar Pension System Work?”, Eastern European Economics, Vol. 43, No. 4, pp. 27-51. – World Bank (2007) “From Red to Gray: The third transition of Aging populations in Eatsren Europe and the former Soviet Union”, The World bank, Washington, DC. – Schneider (2011) „Pension Implicit Debt – Burden of the Young“, IDEA Praha, květen 2011. – Schneider, O. a L. Dušek (2011) „Poplatky penzijních fondů: Komentář“, IDEA Praha, květen 2011. 41