Czechs Need to Boost Private Pension Savings, Premier Necas Says

Czechs need to boost individual savings for retirement in a new system managed by pension funds and rely less on the state, Prime Minister Petr Necas said.

“The message to the people is clear: Don’t rely only on the state,” Necas told a pension-industry conference in Prague today. “Maintaining a view that the state pension is untouchable is naive.”

Necas has made an overhaul of the pension system one of the main goals of his government. Plans to implement measures reducing social spending were among reasons cited by Standard & Poor’s when it last year lifted the rating on the country’s debt two notches to AA-, its fourth-highest grade.

Necas’s government is seeking to boost private savings as the aging population is increasing the deficit in the state system where workers pay for pensions of the retired. Under the new plan, set to start next year, participants will be allowed to redirect part of their compulsory payments from the pay-as-you-go pension program into private accounts.

The Cabinet is preparing the pension change as other eastern European Union members abolish or scale down similar programs to help narrow their fiscal deficits.

Hungary’s Prime Minister Viktor Orban has effectively nationalized $13 billion of private pension-fund assets, while neighboring Slovakia reduced citizens’ contributions into private pension funds by more than a half.

The Social Democrats, the largest Czech opposition party which leads in opinion polls, will scrap the private pension system if it takes power, Jan Mladek, the party’s shadow finance minister, told the same conference.

“Starting pension reform in the year of a deep crisis is worse than a crime; it’s foolishness,” Mladek said as he praised Orban’s pension reversal. “I want to say, with full seriousness, that the next government will abolish” the new system, he said.

The next Czech elections are scheduled for 2014.

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