(Repeats to additional subscribers)
* Reform now or pay later issue divides May 28-29 vote
* Young, worried they will foot debts later, save on own
* Left wants to save PAYG system, right want new accounts
* For POLL on election issues, outcome []
By Jason Hovet
PRAGUE, May 21 (Reuters) - Six years ago, Petr Kalal started
saving for retirement that was four decades away to reduce
reliance on a state pension system that many Czechs of his age
believe will be bankrupt by the time they finish working.
The 31-year-old Prague bank clerk is part of a generation
worried that today's politicians will spend away their future by
neglecting hard-to-sell structural reforms such as pensions.
Public pension liabilities are set to explode in a couple of
decades.
"People who want to govern in the Czech Republic will
promise you anything in the world. They will promise that we
will solve pensions, we will raise everything, you don't have to
pay anything," he said.
"We should all learn from the Greek example, that one day
your debts will come back to find you."
The issue of how or whether to reform systems in place since
the fall of communism 21 years ago has split political parties
and voters ahead of a May 28-29 general election that may decide
how large a bill future generations will have to foot.
After a decade of procrastination, reforming the pension
system is at the heart of how to secure future budgets and
keeping credit ratings agencies happy.
Unlike neighbours Slovakia, Poland and Hungary, the Czech
government still relies solely on a state system that uses tax
receipts from workers to pay pensioners today, rather than
supplementing the system with longer-term private accounts.
Analysts in a Reuters poll listed reform of the one-pillar
pension system as a key task for the next government, although
the growing likelihood that no strong winner will emerge from
the vote increases the risk reform may not get off the ground.
"From the long-term perspective, the fiscal debt (from
pensions) is going to explode if there are no changes to the
pension system," Citibank analyst Jaromir Sindel said.
PAY MORE, GET LESS
Kalal's contemporaries pay the same amount into social
security as their parents but are set to receive far less in
retirement benefits. The pay-as-you-go (PAYG) system's debts
will exceed one year of economic output by 2065, according to
projections by a government council on pension reform.
With the the number of pensioners set to exceed working-age
people by 2050, analysts and industry officials say there needs
to be a second pillar pushing taxpayers to put money into state-
or private-run retirement accounts to meet demands of population
aging and a shrinking workforce.
"Our current system...has only one source of financing: the
payroll tax. We should start to build up a fully-funded pillar
mainly for the younger generations," said Jiri Rusnok, an
executive advisor and pension director at ING Bank.
Rusnok is on a new 10-member government council that is set
to make recommendations on pension reform next month.
The simple option, he said, would be to divert 3 percentage
points of the 28 percent social security tax into individual
accounts. More expensive would be to add a 3 percent taxpayer
contribution that would be matched by the state.
The annual transition cost for the state would be about 0.5
percent to 1 percent of gross domestic product, he said -- a
tall order at a time when budget deficits have to be slashed.
REFORM OR NOT
With European markets battered this year by fallout from the
Greek debt crisis, fiscal discipline has moved to the top of
investors' worry list and is a hot Czech campaign topic.
The leftist Social Democrats, ahead in the polls, oppose a
second pillar and want to protect the PAYG system, saying it
should be up to citizens to get an individual account.
Social Democrat voters are on average older, while the right
has more support among the young, reflecting their respective
policy preferences. The centre-right Civic Democrats are for
private accounts, as are some smaller right-leaning parties.
For now, Czech state debt levels are about half the European
Union average, but falling revenue during the economic downturn
exposed years of neglect on public spending, of which pensions
accounted for 30 percent in 2009.
Deputy Finance Minister Bohdan Hejduk estimated last month
the pension system will run a 35 billion crown ($1.70 billion)
deficit this year due to structural problems and unemployment.
A STEM agency poll a year ago showed two-thirds of Czechs
thought the system needed substantial change or a complete
overhaul, while the rest felt no major changes were needed.
The issue prompted two actors to copy a video from the last
U.S. presidential election urging people to persuade their
grandparents not to vote for leftist parties.
The clip has attracted over 630,000 viewers and gives the
message: "The left will only make debts and after your
grandparents peacefully pass away, we shall have to pay for it
until the end of our lives."
CHANGE TOO LATE
Czechs have debated pension reform for more than a decade
but lack of political will has meant successive governments
failed to introduce a second pillar, instead opting for changes
to the PAYG system such as raising the retirement age.
The government council debating pensions is a reincarnation
of a previous body whose recommendations in 2005 fell on deaf
ears due to the start of election campaigning then.
For Adam, a 34-year-old manager at a pharmaceutical company,
it is best to save now rather than count on the state system.
"I don't think (my) state pension will be sufficient to live
comfortably on, or maybe even to live on," he said.
(Additional reporting by Robert Mueller, editing by Paul
Taylor)
