Govt Lets Slovaks Exit Private Pensions
October 1, 2008
The Slovak government approved a motion on Wednesday allowing people to exit private pension funds and return to the state-run scheme because it fears the global financial crisis will reduce future pensions.
Western-style pension funds were introduced in 2005 by the previous centre-right administration, which had said savings in personal accounts were the only way to prevent a collapse of the state-run pay-as-you-go scheme due to the ageing population.
But Prime Minister Robert Fico, who won a 2006 election with promises to take better care of the poor, has repeatedly attacked the pension funds, saying the value of savings was shrinking.
Fico said the pension funds were exposed to risks of the global financial crisis and were already posting negative returns because of the market turmoil.
"People have to have an option to decide how they want to react to this financial crisis... whether they want to bear the risks," Fico told a news conference.
"We are opening the second pillar (private pension funds) because of the crisis, because nobody can predict how the markets will develop. "The segment most exposed to risks in the future are the pension fund companies," Fico added.
Slovaks, who save half of their compulsory monthly pension contributions in private accounts, will be able to cancel those accounts and return to the state scheme in which money sent by working people cover pensions of the retired.
The plan, which has to be approved by the government-controlled parliament, says the window for opting out should last from Nov. 15 until the end of June 2009.
It will be the second government intervention in the private pension system. Around 100,000 Slovaks out of 1.5 million pension fund clients cancelled their accounts when the cabinet let them do so in the first six months of 2008.
Six pension managers, run by AEGON, ALLIANZ, AXA, ING, VUB Generali and KBC's unit CSOB, now manage 62 billion crowns ($2.89 billion) of pension savings in total.
The pension system is complicating government welfare plans because deficit in the state-run scheme must be included in the total fiscal gap. This limits spending in other areas as the country is preparing for 2009 euro adoption and must cut its deficit.
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