RPT-Czechs propose funded pensions; to spark debate

                                
 (Repeats storty published late on Tuesday)
* Ministry eyes compulsory contributions to funds
                                
 * Up for discussion in the ruling coalition in coming months
                                
 * Funding gap may be covered by hike in value-added tax
                                
 
                                
 PRAGUE, Nov 30 (Reuters) - The Czech labour ministry
proposed a switch to a fund-based pensions system on Tuesday,
intensifying debate on the key reform the centre-right cabinet
has pledged to carry out after winning an election last May.
                                
 The Czech Republic, like many other European countries,
faces the prospect of rising life expectancy and a low birth
rate swelling the proportion of pensioners in the population,
which will put increasing pressure on the budget.
                                
 Pension reform is key to making the country's relatively
solid fiscal position sustainable and an important factor for
its credit rating.
                                
 The proposal aims to shift some compulsory contributions
away from the state pension system that is currently used to pay
pensions into pension funds where people would save for their
own future pensions.
                                
 The ministry proposed that initially 3 percentage points of
the 28 percent social tax would go to funds as of 2013. This
would rise to 4 points in 2016 and 5 points in 2019.
                                
 The gap in paying out current pensions caused by the
diversion, which the ministry sees at 30 billion crowns ($1.57
billion) in 2013, could be covered by unifying the two rates of
value added tax, now at 10 and 20 percent, at 19 percent, the
ministry said.
                                
 "The key thing for the minister is that the contribution (to
funds) will be compulsory, however the proposal is a matter for
discussion," a ministry spokeswoman said.
                                
 This is where the coalition parties may disagree with the
Labour Minister, Jaromir Drabek of the conservative TOP09 party.
Prime Minister Petr Necas, from the centre-right Civic
Democrats, has said he was against compulsory contributions to
private pension funds.
                                
 The opposition Social Democrats also oppose any such plan.
                                
 The ministry has also floated the idea of a state-guaranteed
fund which would only invest in Czech state debt - giving people
the option of staying out of the private sector.
                                
 Confidence in pension reforms has been dented by poor
performance of some funds in the financial crisis and moves in
Hungary, where the government is trying to force people back
into the state-run pension system and to use pension fund assets
to plug gaps in the budget.
                                
 The coalition needs to finalise the plans by next spring if
it is to stick to its plan to adopt the necessary legislation by
the end of next year so it can take effect in 2012 and the new
system can start operating in 2013.
                                
 The Czech Republic has public debt under 40 percent of gross
domestic product, about half of the EU average, and has not
suffered the loss of investor confidence that has hit some
peripheral euro zone states and some countries in central and
eastern Europe.
                                
(Reporting by Jan Lopatka and Roman Gazdik; Editing by John
Stonestreet)