CZECH REPUBLIC - The draft pension reform plan will have to contain some form of mandatory retirement savings, according to Tomas Prouza, who was recently appointed Czech deputy finance minister with responsibility for pension reform.

Under the current pension system, the money collected from employees' social insurance is directly paid out as pensions. Roughly one quarter of the 10 million Czechs are clients of one of 12 private pension fund.

Individual responsibility for future pensions must be strengthened, Prouza said in an online interview at the financial server finweb.cz. The increased responsibility should follow hand in hand with lowering the tax burden, but will not necessarily be compensated one-to-one rate, as the changes in the pension system will need to be financed.

There is not much room in the state budget for higher pension subsidies. However, the state could consider increasing tax relief to companies which save for pensions of their employees, said Prouza.

Prouza also believes that a re-evaluation of state subsidies of various financial products would be useful for the planned pension reform.

If we want focus on building up long-term savings, it makes no sense to invest the greatest amount of state funds in building societies, which do not create long-term savings, said Prouza. Building society savings is the most popular type of saving in the Czech Republic, due to generous, up to 15%, state support.

A government expert group, which was established in April, is working on outlines of the pension reform. The Czech government planned to submit the main principles of the pension reform this year.

Last month, however, the Czech Finance Ministry said that pension reform would start only in 2006 because it was hard to achieve an agreement across all political parties. The debate on pension reform has halted during the current government crisis.

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