An Analysis of the Voluntary Pension Fund System in the Czech Republic
|Author(s):|| doc. Ing. Ondřej Schneider MPhil., Ph.D., Jelínek, Tomas|
|Type:||Chapter in book|
|ISSN / ISBN:||ISBN: 3-7908-1210-2|
|Published in:||Műller K., Ryll A. and Wagener H. (eds.) Transformation of Social Security: Pensions in Central-Eastern Europe|
|Publishing place:||New York, Physica-Verlag|
|Grants:||IES Research Framework (1999-2004) "The Czech Economy in the Context of European Integration and Globalization"|
|Abstract:||The population of the Czech Republic, as well as populations of other transition countries, is undergoing a fairly rapid process of ageing. The mortality rate has been decreasing (from 12.5‰ in 1995 to 11.4‰ in 1994) as well as the fertility rate (from 12.7‰ in 1995 to 11.7‰ in 1994). This relatively rapid change in the age structure undermines the predominant pay-as-you-go (PAYG) pension systems in transition countries and leads to growing pension system deficits in Hungary, Poland and Slovakia. The Czech Republic has been spared this development as it has had extremely low unemployment and has reformed the PAYG system significantly. Nevertheless, the slowly increasing unemployment and increasing ranks of pensioners are bringing the Czech pension system under pressure, as well. The Czech pension system recorded its first deficit in 1997 and is headed towards a larger deficit in 1998.
The ageing process has yet another unattractive consequence. As the share of pensioners expands and as old-age pension is still seemingly secured by the state, aggregate savings have begun to fall. For example, the saving rate in the Czech Republic decreased from 30,6% in 1995 to 26% in 1997, and households' saving rate decreased from 12% of disposable income in 1995 to 8.6% in 1997.2 In this paper we aim at explaining the impact of reform within the pension system on the level of private savings. Namely, we will focus on the introduction of private pension funds which were launched in the Czech Republic in late 1994.
An increase in private savings, specifically in long-term savings for retirement, may represent an important factor which would abate future problems in financing pensions. Private pension funds, launched in 1994 and encouraged by the government through matching grants, were seen as an important vehicle for securing higher income for pensioners through increased private savings. Results of the pension funds so far have been disappointing, measured by amount of assets they have accumulated and by the future pension which will be paid. Nevertheless, pension funds’ impact on savings behaviour remained unexplored.