Czech Ministry Seeks to Boost Pension Funds to Hinder Opposition

The Czech Finance Ministry is seeking to boost private pension savings to counter plans by the opposition Social Democrats to seize the retirement funds if they win the next election.

A draft bill presented by Deputy Finance Minister Radek Urban today would enable more people to divert part of their social security tax to private accounts. The second-pillar pension funds have attracted 74,573 members since their creation six months ago, compared with the full-year plan of about 500,000, according to the Association of Pension Funds.

The country’s three-party ruling coalition, which has made private pensions a cornerstone of its policy, is racing against the clock as lagging membership makes it easier for the Social Democrats, who lead opinion polls before 2014 general elections, to scrap the private accounts. That risk is among reasons for low membership, said Karel Svoboda, head of the association.

“The number of subscriptions to date suggests the target won’t be met,” Svoboda said at a joint news conference with Urban in Prague. “We will all do everything to help the second pillar survive political turbulence. Canceling it would be a major mistake that would erode society’s confidence in private investment at a time when there is no alternative.”

Proposed Changes

If approved by parliament, the ministry’s amendment would increase the maximum age at which taxpayers can opt for private savings to 40 from 35, Urban said. A deadline for older people that elapsed at the end of June would be extended until the end of next year and members would be allowed to quit after five years and shift funds back to the government-run pension system, according to the proposal.

The three-year-old coalition is losing voter support after it used spending cuts and higher taxes to curb the deficit and as a spying and bribery scandal prompted Premier Petr Necas to resign last month. President Milos Zeman last week picked former Finance Minister Jiri Rusnok to lead a caretaker cabinet, saying the move is designed to trigger early elections.

Necas’s administration previously said revamping the pension system would curb future budget deficits as the aging population of more than 10 million would rely less on the public pay-as-you-go system, where taxpayers finance current retirees’ pensions. The Social Democrats have opposed the move as antisocial.

ING Groep NV announced last year that it wouldn’t offer second-pillar accounts in the Czech Republic because of the risk the opposition would scrap the program. Rusnok, who at that time was chief executive officer at the Dutch bank’s Czech pensions unit, said in an interview for Lidove Noviny newspaper published in November that the pensions revamp was “in ruins.”

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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