Czech minister confirms closure of second pillar by 2016

The Czech Republic’s new government has lost little time in sounding the end for the short-lived second-pillar pensions system.

The closure of the second pillar was a long-standing objective of the Social Democrats (CSSD) and its leader Bohuslav Sobotka, the new Czech prime minister, with the policy forming part of an agreement with the CSSD’s coalition partners, ANO 2011 and the Christian Democratic Party (KDU-CSL).

On 30 January, a day after the government’s swearing in, the CSSD’s Michaela Marksová, the new minister of Labour and Social Affairs, told the press the government aimed to close the system as of 2016.

The coalition agreement currently states that the funds accumulated in second-pillar accounts would be merged with those in the long-established third pillar, without clarifying what would happen to the accounts of members without third-pillar schemes.

The government now plans to set up a working group of political parties, economists, employers, trade unions and other stakeholders to devise a transfer plan.

Marksová stated that, while no fund member would lose their savings, her preference would be for the monies to return to the state system.

This would be legally controversial.

In contrast to the dismantled Hungarian system, and the partially dismantled Polish second pillar, which were both funded entirely by contributions diverted from the first pillar, the Czech second pillar has been funded by diverting 3% of the 28% first-pillar social contribution, with members adding a further 2% from their wages.

Due to the additional 2% funding, as well as the CSSD’s long-standing threat to close the system when in opposition, the second pillar never gained momentum.

At the end of 2013, only 83,960 members had signed up, with none of the six pension companies yet meeting the 50,000 legal threshold required by the end of this year to retain their licence.

By comparison, the third pillar had some 5m members.

Assets totalled an estimated CZK350m (€12.7m), while last year’s returns averaged a sub-inflationary 1.8%.