Pensions - Articles - Pension reform approved in Czech parliament

 The lower house of the Czech parliament has given its final approval to legislation that will in time permit citizens to divert part of their social security payments from state pension accounts to private ones.

 The reform aims to help people to individually save for retirement as the ageing population puts pressure on the first pillar of pension provision, which is likely to lead to lower state pensions in future.

 As Czechs will be able to put part of their social security contributions into private pension savings, the reform will reduce revenues for the state in the short to medium term.

 The plans would see 3 per cent of salary diverted into private funds, complemented by a 2 per cent contribution from the saver’s net income. Critics believe only a minority of the population would benefit from the plan, and analysts have said they see only a 10-20 per cent participation rate, despite the government expecting about half of adult Czechs to join the scheme.

 The reform is remarkable, as governments in Hungary, Poland and Slovakia have in recent years rolled back fund-based systems to plug their state deficits. Moreover, in the Czech Republic, the center-left opposition Social Democrats have said they would change or cancel the plan if they win power in the next election, planned for 2014. 

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