Economist: This is the pension reform we’ve been talking about for years | iRADIO

Can it be said at this point that a reform of the pension system is needed, or would the opposition’s claims to improve tax collection, support the birth rate and the economy, and introduce a third pension pillar apply in certain circumstances? Then, according to the opposition, there would be enough money for pensions.
As I see the state of the world and realistic forecasts for the future, we need reform. At least from an economic point of view – we already missed 70 billion in the points system last year.

For people, including about two of us, who paid into the pension system, their contributions and high payments were not enough to cover the pensions of current retirees. And the disparity between how much people will pay and how much people will be able to draw from the system will increase in the future due to demographic changes.

The changes are positive in the sense that people are living to an increasingly old age. This is what we wish for, and precisely in order to be able to draw pensions in old age, we share the goal with the government that we want to make the system financially sustainable in the long term and that for this we need to make changes in the pension system.

The changes you talked about are positive in themselves. Yes, we can boost the birth rate and yes, we can increase economic growth. I am in favor and within the framework of the National Economic Council of the Government we are proposing measures that go in this direction. But these alone would most likely not be enough to make our pension system sustainable, and it is not certain whether these changes will succeed.

A significant change

As for the adjustment that the government is now proposing – can it be called a reform?
I don’t know if we have a linguistic window here, but if we have been talking about pension reform for decades, then what we have now is pension reform. It is a significant change in the functioning of the pension system. Not that the way the pension system works is changing, but the parameters are changing significantly so that it will be less deficit and more financially sustainable in the future.

I don’t know if it’s possible to do the math right now, but would the proposed adjustments be enough to balance the retirement account going forward?
That’s a good question, and according to the best forecasts I can remember, they wouldn’t be enough. Around 2050, the pension system should be at its most heavily indebted. This means that every year, if the proposed changes did not take place, the debt would be roughly four or five percent of GDP. We would have to compensate for this from other taxation than social insurance.

By implementing the government’s proposed changes – mainly raising the retirement age and reducing future pensions – we will significantly halve or slightly more, roughly two percentage points, of the deficit in 2050.

So there won’t be an offset and it won’t be the case that the expected deficit is zero percent. I am I don’t even think that we should aim for zero percent, but the deficit should realistically be smaller, perhaps somewhere around one percent. Thowever, this will cut a large part of the task and make the system significantly more sustainable in the long term.

It makes no sense for us to aim to equalize the pension system. Demographic changes are great and in some years and in the past the pension system was in surplus and more was collected than sent to pensioners. And in the next decades, due to demographic developments, it will be the other way around.

Ambition to be sustainable

The biggest debate is around the proposal to increase the retirement age according to life expectancy. After 2030, the age limit would be set for people who would have just turned 50 each year, and would rise by no more than two months. How do you evaluate the proposed mechanism?
I think it’s going in the right direction, along with reducing future pensions. These are the two changes thanks to which the reform fulfills the main ambition, which is to make the system more sustainable – the expected income and expenses of the system will be closer.

The specific implementation, as you described it, is one of the possible ones. It is not the only one, it is not without errors, and it is possible to discuss how to do it differently. But the result should be the same in the sense that we will live to retire and under the proposed changes we should spend fewer years in it than under the current system, so we want to increase the retirement age.

According to which formula or system it should be extended is already a technical question. It is a good solution, there are other good solutions and there may be some change or improvement here.

Another point discussed is the reduction of pensions after 2026. According to the proposal, how fundamental should it be?
This is a relatively important measure, as if the second most important. As I said, those are the two changes that make the whole thing a major reform.

Extending retirement as proposed is more significant than the other change, in terms of savings over the next decades. But the second one is also quite significant. So I hope that all of us who retire in the future will have lower pensions than we would have under the current system.

Specifically, the recalculation mechanism will change. The value of Social Security contributions that we will pay over our lifetime will translate into smaller pensions than would be the case under the current system. So our pensions will very likely be significantly higher than people who have pensions today, but they will be lower than if it were calculated under the current system.

That it will affect all future pensioners means that even if the changes are not big – the reduction is not big for each of us, but it adds up to contribute to financial sustainability.

Vera Štechrová

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