Pension rise set at 5 percent

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Pension rise set at 5 percent

The Slovak Spectator, May 12, 2003

The Slovak cabinet has approved a 5 percent increase in pension payments to take effect from July. The average old-age pensions will rise by Sk300 (€7.35) to Sk6,400 (€157) a month. The highest pension available will rise from Sk8,700 (€213) to Sk9,100 (€224) a month.

The government debated the proposal at an extraordinary session shortly after negotiations between state representatives, trade unions, and employers ended.

The unions had asked for a rise of 10 percent, but the 5 percent rise is the most that social security provider Slovenská poisťovňa could afford without causing future financial problems, according to the Labour Ministry.

However, Miroslav Knitl, director of Slovenská poisťovňa, said on April 28 that because of the good financial state of the company it would be possible to raise pensions by as much as 7 percent. The Labour Ministry refused a higher hike, referring to the expected negative impact on public finances.

"The overall surplus of the insurance company is not the same as the surplus of the pension fund. It has been cumulating since 1997 and now represents some Sk5 billion," Labour Minister Ľudovít Kaník said.

Analysts believe that the rise could have been higher, to bring Slovak pensions in line with those of neighbouring countries.

Pavol Kárász from the Slovak Academy of Science told the daily Pravda: "Many pensioners have severe problems with their standard of living, which is already much lower than in the surrounding states."

The 5 percent rise is below the current rate of inflation, which means pensioners' standards of living could drop by approximately 3 percent.

According to current legislation, pensions must be raised when living costs go up by 10 percent or the average wage rises by 5 percent, but no sooner than three months after the previous increase.

Pensions were last raised in July 2002 and the ministry expects the 5 percent average wage rise condition to be fulfilled in the second quarter. The 10 percent living costs rise condition is expected to be fulfilled in November.

This should be the last year that the increase of pensions will be decided by parliament. According to a proposed new law on social insurance expected to come into force in 2004, pensions will always be raised in July, by a percentage linked to the rise in the cost of living and increases in the average wage.