Retirees protested against pension reform in Prague on March 5
The Czech government’s proposal for a pension fund has gone over like a lead balloon with the public. Polling firm NMS Market Research asked 1,043 Czech respondents, and only one in five thinks the idea is credible. There is a great deal of mistrust in the investment funds. Two-thirds of those questioned don’t trust them and consider any money put in the funds to be at risk.
This mistrust in the government proposal may stem from a lack of information on the planned steps. Only one in three Czechs stated that they understood the pension reform, with just half saying they partially understood it; for 17 percent the reform is “completely unclear.” The most common ambiguities concern state regulation and supervision of the private funds, making sure the money is safe, the manner of paying pensions and settling inheritance claims.
More than half the population thinks the money will be misappropriated from the funds. The majority — 63 percent — also stated that they would prefer to save in state accounts, even though they will have lower interest rates.
Worried about the rise in the cost of living
Another cause for worry is the growth in the financial expenditures householders will face from the unified value-added tax (VAT) rate of 20 percent. Nearly half of the respondents feel it is wrong for certain kinds of foods to be in the higher VAT rate. They believe all food should be in the lower rate. People expect to see a Kč 500 to Kč 1,000 increase in their average monthly expenditures if the government’s proposal goes through.
According to separate poll by the financial group Axa, Czechs are more or less ready for the government’s planned reform to the pension system. For 93 percent of working Czechs, a pension is linked to the necessity of being financially prepared for it. Three out of four economically active people are currently providing for their retirement.
“The pension system has to change. On the one hand parametric changes to the system are necessary, for instance gradually increasing the retirement age. The most important change, however, must take place in people’s minds,” said Mojmír Boucník, the financial manager of the Axa group for the Czech Republic and Slovakia and the vice president of the Association of Pension Funds of the Czech Republic (APF ČR). ‘Even though they might not like it, they are prepared to work until a much older age than today’s pensioners.’
“They must start saving more if they want to be financially secure when they are pensioners. The problem is that, on the whole, Czechs don’t save enough,” Boucník said.
In the Axa Retirement Scope 2010 poll, 70 percent of the working population disagrees with raising the retirement age. At the same time, however, Czechs expect to enter retirement at 64 on average. Young people (under 34) expect to work until they are 66. “Even though they might not like it, they are prepared to work until a much older age than today’s pensioners, who, on average, stopped working at 57,” Boucník said.
The response to the question about where people expect to get the majority of their pension from is most revealing about the potential change in the approach to saving for retirement. Some 33 percent of people from 25 to 34 count on the majority of their retirement income coming from the basic state pension.
“More than half of young people expect to be financing the majority of their pension themselves. The current reform can facilitate this trend, although it will, of course, depend on the fine tuning,” Boucník said.
Previous articles about the pension reform are archived at this link.