We have to tell the truth about the second pillar

The author is an analyst, the text is a private opinion of the author

One of the most commonly repeated topics in the discussion of public policies during Robert Fico’s fourth government is his effort to limit The second pension pillar or use the means of placing a budget deficit.

This debate is happening not only in the context of the well -known government Prime Minister’s aversion to the second pillar, but also to maintain payments from the first pillar for the key voter segments of the government coalition at levels that are already causing budgetary problems and in the horizons of several decades are financially unsustainable.

The first wave consolidation has required a reduction in contributions to the second pillar, and every week there is a new report in the media about further reduction in the next wave, because only the thirteenth pensions will be needed more than nine hundred million euros this year.

However, we should tell ourselves the cruel truth about the second pillar: it did not work in its current form and was unsustainable for a long time.

Without political conformity, high fees and low returns, it was only a matter of time to last. Instead of screaming, as Fico is stealing pensions, we should discuss, and opposition parties should prepare an alternative to how the other pillar goals could be achieved.

Initial sin

The basic problem of the second pillar is the lack of political consensus, which is based on its ideological nature. Despite the admirable work on it and its repairs have done in the last two decades technocrats as Ľudovít órorneither could they change how originally it was created.

Investing through the structure pension management companies There is only one part of the problem with absurdly high fees, extremely conservative strategies and a poorly set starting position for most savers.

The main is the essence of private savings through individual savings accounts in global financial markets. Too much of savers from lower income groups and uncertain jobs had no good chance of saving the amounts that could make sufficient retirement payments.

The merit on the design of the second pillar is based on the idea of ​​a meritocratic society, in which individual success is a question of individual’s abilities and efforts, and not a comprehensive interplay of circumstances, cultural and social capital in the young market economy.

If the merit is to be motivational in the labor market, what I agree with as a principle, in reality She has deterred many and alienated. The second pillar has become a pension version of the rescue boat, where the diving city is sailed by richer passengers, while the poorer remains less and less in the first pillar.

A simple objection could be that the second pillar might exist if it Robert Fico He did not attack from the beginning and did not spoil it repeatedly during his governments by opening or changing the conditions.

This is the essence of this criticism – if the second pillar was created better and fairer, it would be advantageous for most people and thus politically sustainable. Instead became an easy target for Robert Fico And his undisputed talent to identify topics that can make the elections and maintain power.

The problem is not investing

We know that the model of today’s second pillar does not work in the context of the economy of our income and development levels, thanks to many examples from abroad. The Czech Republic and Hungary had a similar second pillar, but canceled it due to the lack of political conformity.

Chilean pension systemthat inspired the Minister of Labor, Social Affairs and Family in his reform Ľudovít Kaníkis now generally considered a failure, as the state has to pay for an additional contribution to it for almost twenty years to maintain minimum pensions at least above the poverty level. Low pensions were one of the main causes the biggest protests In the history of Chile in 2019.

The mistake is not investing as part of pension savings, it works in many countries around the world. Rather, the problem is that the revenues of people of savings of relatively low salaries in emerging economies will be able to ensure sufficient income without the need for solidarity co -financing from people with higher incomes.

Slovakia needs a mechanism that will balance the continuous pension pillar. The reality is that around 2060 (approximately at a time when the author of the text reaches a standard retirement age), only 1.6 of the active payer will work on one pensioner. It will be possible to pay too low from the ongoing pillar to make it realistic.

Better models

The task of the second pillar, not for the individual saver, but for the system as a whole, was to diversify income and compensate for the potential slowdown in growth of the Slovak economy, which depends on the first pillar, the growth of the global economy.

However, savers were exposed to another type of risk – timing of retirement in accordance with global financial cycles. Together with the other elements of the system, this deepened the uncertainty of the final amount of pensions.

A possible alternative for today’s situation is a technocratic fix that we have been heading for the last fifteen years. For example, the law defined maximum fees, default investment strategies, or if it was political will, increase the age of retirement. But none of these solutions would solve the main political problem on which the second pillar stands.

The actual alternative should be a paradigmatic change. For example, by building a public pension fund that would be invested globally in financial, publicly traded, markets, as well as in the « real economy » through investment in private markets (Private Equity or accidents’ capital).

A recent amendment to the Act on Pension Savings has allowed pension management companies to buy to some limited extent as well as bonds for the financing of public benefit projects in transport, social or environmental infrastructure. However, this does not mean that the money for these projects, say, hospitals and highways, will really go. The bonds as such are still a very passive tool.

Public pension funds are common in the Western world and some of them are considered gold standards of investment, such as Canadian public sector employees’ funds within the provinces, ATP Danish, New Zealand or Australian Super Fund. Each of these systems works differently and their management is difficult, but it is essential that they are more functional than our model based on the naive idea of ​​the saver.

If similar funds are well managed, and this applies to both pension funds and university funds or foundations, they may have better returns than when they only rely on investing on the stock exchange or when throwing all responsibility on the saver. In addition, they can be balanced by merit and solidarity.

Whatever the reform, it must provide a true alternative, and not only the defense of the unpopular status quo.