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Czech
Republic November
1st, 2006
The 46-year-old does not know whether she will be able to afford the same living standard as current pensioners. "I do not even want to let that thought enter my mind," Kubů says. The state still guarantees pensions worth nearly 41 percent of a person's gross salary, so current pensioners do not need to worry about poverty. The question is how long this will last. Acting Prime Minister Mirek Topolánek's Cabinet admitted in September that the government lacked some 10 billion Kč ($440 million) to make pension payments in December. The Cabinet had to dig up the money from reserve funds, increasing the overall budget for pensions this year to 267 billion Kč — almost a third of total state expenditures for 2006. "Negative outlooks are coming from all sides every day, and these reports worry everyone," Kubů says. EU warning Kubů's worries about what the pension system will look like when she is old enough to collect on it are shared by the European Commission (EC). In its most recent forecast of the Czech Republic's public-finance development, the EC told the country that it urgently needs to reform its pension system. The EC pointed to the aging population, which will force the government to spend more and more money on pensions while fewer people will be contributing to the state-run pay-as-you-go system. Nearly 2.5 people of productive age now pay for each pensioner, but in 50 years only one working person will be able to cover each pensioner. As a result, the EC estimates that Czech expenditures on pensions will grow 7.2 percent, compared to a projected European Union average of 5.6 percent. High time for talks The deteriorating system will put plans for reform at center stage, Labor and Social Affairs Minister Petr Nečas said. "Long-term developments, as well as the immediate situation, clearly indicate that it's high time that we start to work on reform immediately," Nečas said. The system could change in the second half of next year or in January 2008 at the latest, he said. By then, Parliament should have come to an agreement on the changes that would include extending the age of retirement and setting a minimum period for making contributions in order for individuals to qualify to receive pensions. Preparations should continue, Nečas said, regardless of the political situation, Cabinet composition or possible early elections. He added that it is better to pursue less-ambitious goals on which Parliament is able to agree than to push for radical changes. "We are expediently avoiding the areas prone to political conflicts, such as additional private-pension schemes," Nečas said. In order to trigger the negotiations, he sent leaders of parliamentary parties a questionnaire in early October with 16 questions concerning particular changes to the system. Talks about the changes should start early this month, Nečas said. Politically dangerous Calls for reform have come from economists and institutions such as the World Bank and the Organization for Economic Cooperation and Development for some time, but those have intensified recently. International rating agency Standard & Poor's warned that, without changes, public debt would rise to five times the country's gross domestic product by 2050. In July 2005, a commission of experts assembled by the government — known as Bezděk's Commission — released a study about the state of the pension system that indicated the current one is likely to fall apart within 20 years. "If a quick reform is not implemented soon, a social collapse could occur," commission Chairman Vladimír Bezděk said. He added that politicians will need to reset the ratio between state involvement and people's payments to funds, and recommended that the government up the retirement age from its current 62. This gave some ruling politicians an excuse for putting off any reforms. In the run-up to this past June's general elections, no candidate wanted to risk voters' support by introducing changes that would force people to put more money into system and work three additional years. Then-Prime Minister Jiří Paroubek said the 20-year period before the system's expected crisis gives the government enough time for reform. This spring, Parliamentary parties discussed pension reform, but plans collapsed on the proposal to extend the retirement age to 65. While four of the parties agreed with the proposal, the Communist Party of Bohemia and Moravia stood against it.
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