CZECH REPUBLIC - The Czech Parliament approved this week the new government’s programme, which includes a pledge to prepare a reform of the pension system by the next general election scheduled for mid-2006.

“The new pension system will continue to employ the existing pay-as-you-go system guaranteed by the state, but will reflect more the individual’s income and pension contributions,” said Martin Jahn, vice premier for economic issues, adding the new system should bring financial stability and long-term functionality.

The three-party coalition government does not, however, offer many changes compared to plans of the previous government that quit prematurely in June.

The only significant change is that the new government is willing to draft the pension reform even if the opposition parties - the Civic Democrats (ODS) and the Communists (KSCM) - will be against the proposed solutions.

The previous government led by Vladimir Spidla believed the pension reform was too crucial an issue to start it without a broader political consensus. The ruling coalition enjoys the slim majority of 101 seats in the 200-member lower house.

According to Jahn, the new government wants to support voluntary pension insurance. Similarly to plans of the previous government, the new government’s plan also includes employee pension schemes.

“The government will adopt measures to reduce the abuse of welfare payments in order to maximize contributions paid to the pension system,” said Jahn.

The new government will stick to previous plans to establish reserve fund to cover the costs of a future transition to the new pension system. Czech Finance Minister Bohuslav Sobotka believes the fund should be financed by privatization revenues and dividends from large companies where the state owns a stake.

Analysts estimate the government could get 16-20 billion crowns (0.5-0.6 billion euros) from the privatizations. However, major privatizations are not likely to be finished by mid-2006, according to Jahn.

An expert group that was established in April will continue to meet to come up with solutions that are to be proposed to the new government.

The government wants to maintain the pay-as-you-go system as the cornerstone of any future scheme. On the other hand, analysts believe the only viable option that would solve the Czech pension system must be based on mandatory private pension insurance.

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