RPT-Czech govt to start saving for pension reform

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The Czech government aims to save 40 billion crowns ($2.07 billion) by 2010 on a special account to be set up for future pension reforms, Labour and Social Affairs Minister Petr Necas said on Thursday.

The government aims to gradually reform the pay-as-you-go pension system, which collects pension insurance and directly pays out to pensioners, to a more stable system based partially on personal savings.

The changes will be a key part of reforms needed to stabilise the central European country's public sector finances over the long term, one of the preconditions for adopting the euro.

Necas said the government was proposing a legal amendment that would allow saving capital gains on state assets, such as dividends from shares in energy companies, at the account.

Further funding would come from a surplus on the pension insurance accounts, a temporary phenomenon caused by fast economic growth.

"We want to take advantage of positive wage growth and employment developments," Necas told a news conference.

The funds will be invested into safe assets, such as state bonds issued by member states of the Organisation for Economic Cooperation and Development (OECD).

A conversion toward a fund-based system, which would allow people to partially opt out of the pay-as-you go scheme, requires a capital reserve to bridge the gap caused by the fallout of payments by people who switch to savings.

The 40 billion by 2010 would be a just a small amount compared to what would be needed, Necas said.

It would need to be beefed up further by revenues from privatisations and taxes, he said.

The government is now working on the first phase of the reform, which mainly raises the retirement age to 65 years for all, from 63 years that would apply to young people under current legislation.

[PRAGUE/Reuters/Finance.cz]