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Pension reforms in Slovakia: background document

Characteristics of the pension system

  • The Slovak pension system consists of three pillars: 1. mandatory pension insurance, 2. old-age pension funded scheme, and 3. voluntary supplementary pension saving scheme.
  • The insurance-based mandatory pension scheme is defined as a “pay-as-you-go system”. This component is financed primarily through pension insurance contributions that are paid by the economically active persons.
  • Employees contribute with 4% and employers with 14%. However, if the employees simultaneously participate in the second pillar (so called “mixed pension plan”), 4% of the employers’ contributions are redirected to the employee’s personal pension account (European Commission and Social Protection Committee 2015). Self-employed persons contribute to the old-age pension scheme with 18% of monthly declared earnings. They might also divert 4% of contributions to the second pillar.
  • The minimum contribution period for pension entitlements in the mandatory scheme is 15 years.
  • This pension component mixes both solidarity and earning-related principles. Whereas the maximum value of the contribution is limited, low-income workers are protected by a minimum assessment base (OECD 2015). The old-age pension is annually indexed.
  • In addition to the standard mandatory pension scheme there is a special social security system that covers exclusively such public services as soldiers, policemen, customs officers, firemen, and rescue workers. It is funded both by contributions paid by the relevant workers and by direct state budget subsidies (e.g. European Commission and Social Protection Committee 2015).
  • The contributions to the old-age pension funded scheme are paid by employers, employees and the State. Old-age pension from the second pillar is paid only in combination with pension from the first pillar.
  • The voluntary supplementary pension saving scheme is open to all residents aged 18 and over. Certain arduous work and artistic professions are mandatorily covered by this scheme, which moves the scheme towards occupational pension schemes. However, standard occupational schemes do not exist in Slovakia.
  • Workers in arduous occupations are obliged to enter the third pillar and the employer is obliged to contribute for such workers (2% of the employee's assessment base). In other cases, employers may contribute to their employees' savings accounts as a form of benefit, usually under terms specified in collective agreements.
  • Workers employed in arduous occupations are entitled for benefits paid from the voluntary system after 10 years of work in such jobs and from the age of 55 years (European Commission and Social Protection Committee 2015).

An overview of pension reforms in Slovakia since the 2000s

The reform of the pension system in Slovakia started as early as in 2000. Its goal has been to re-define and re-create the insurance system in order to take into account growing pension expenditures and to tackle unfairness of the old system. Between 2000 and 2005, several important measures were introduced:

  • The first and the third pillar were modernised and a new second pillar came into force. The new scheme was introduced by Act No. 43/2004 Coll., on old-age pension savings and has operated since 2005 (see e.g. Bednárik 2015).
  • The pensionable age was gradually increased between 2004 and 2014 from 60 years for men and 53-57 years for women (depending on the number of raised children) to 62 years for both genders. For women with several children the pensionable age should be levelled before 2024 (OECD 2015).
  • The basis of calculation for the pension passed from the 5 years of highest income to the last 10 years prior to retirement.

A number of changes have been introduced in the subsequent period mostly by social-democratic governments in order to further improve the long-term sustainability of the pension system (cf. European Commission and Social Protection Committee 2015; OECD 2015; Bednárik 2015):

  • In order to help the self-employed during the crisis their level of pension contribution was temporarily decreased between April 2009 and December 2010. Subsequently the amount of contributions has been gradually increased again by raising the minimum assessment base for the self-employed. The increase in contributions has been introduced with consent of representative bodies of self-employed as this measure is meant to improve social security of self-employed.
  • Since 1 January 2013 the principle of solidarity related to the mandatory scheme has been strengthened over the transition period 2013 – 2018. The replacement rate has been increased for new pensioners who earned low wages during their working career and decreased for high-wage earners.
  • The tax incentives for the voluntary supplementary pension saving scheme were suspended between 2011 and 2013. They have been reintroduced since 1 January 2014 but are less generous than the initial ones.
  • Since 2013, pension insurance contributions have been paid not only from the earnings coming from employment contracts and self-employment but also from agreements on work performed outside an employment relationship. This partial reform was motivated - besides the effort to increase the resources of the social security scheme - by the intention to cover persons working under such agreements by benefits paid from social insurance systems similarly to employees (European Commission and Social Protection Committee 2015).

 

 

Modifications of the private old-age pension funded scheme

  • The initial contribution rate was set at 9% of the gross wage. However, it has been lowered to 4% as of September 2012 in reaction to the economic crisis. The contribution rate shall be increased again by 0.25% every year between 2017 and 2024 to reach 6% (European Commission and Social Protection Committee 2015; OECD 2015; Bednárik 2015).
  • Since its introduction, the enrolment principle has changed several times. The participation was initially mandatory for workers entering the labour market for the first time whereas other workers aged up to 47 had the possibility to choose to join the mixed scheme by 30 June 2006 or to remain in the public scheme only. From January 2008 to March 2012 the participation was on a voluntary basis. It became mandatory again for all new entrants to the workforce from April 2012, although they were able to opt out within the first 2 years of employment. In total, the personal account scheme was opened temporarily four times to enable participants to opt out. Since 1 January 2013 new entrants to the social security system are automatically enrolled only in the first pillar, but up to the age of 35 might voluntarily apply for membership in the second pillar (OECD 2015; European Commission and Social Protection Committee 2015).
  • The minimum contribution period for pension entitlements in the second pillar was initially set at 15 years. However, since April 2012 it has been reduced to 10 years and since 1 January 2015 there has been no minimum contribution period (see European Commission and Social Protection Committee 2015; OECD 2015).

Further expected changes:

  • In line with the country specific recommendations and in order to reach the 2020 national employment target, the pensionable age is expected to be automatically linked to the development of the life expectancy from 2017 (e.g. Bednárik 2015; OECD 2015). However, the continually negative situation in the Slovak labour market leaves the question of older employees’ participation rather open (European Commission and Social Protection Committee 2015). Moreover, trade unions do not agree with unlimited adjustments of pensionable age in particular with respect to blue collar workers. They call for lower standard retirement age for people employed in arduous occupations.
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