Pension reform and Social Security Governance

in the Slovak Republic

Turin, June 2006Mária Svoreňová

Statutory pension insurance

• 1. Pillar

• pay-as-you-go financed

• Social Insurance Agency (SIA) collects contributions and pays pensions

• regulated by the Act No. 461/2003 Coll.of Laws on Social Insurance

• 2. Pillar• saving on personal accounts in

pension fund management companies (PFMC)

• SIA collects contributions for pension funds

• pensions are paid by insurance company and by PFMC

• regulated by Act No. 43/2004 Coll. of Laws on Old-age Pension Savings

Pension insurance reform goals

• financial sustainability of scheme

• resist to the ageing of population

• reduce number of pensioners

• provide more decent pensions

• introduce principle of fair replacement rate

• equal rights of women and men in pension scheme

• increase employment of elderly

Trade Unions demands and expectations• Protection of strong and sustainable PAYG pension scheme

• Introduction of wage based calculation of pensions but

• With a strong solidarity principle

• Providing a minimum pension benefit for low income workers

• Slower increasing of the retirement age for women and

• 60 years of retirement age for both genders

• Providing working places for people at the age before retirement

• To sustain claims of pensioners and insured persons reached in the old pension scheme (such as disability benefits, value of pensions etc.)

• Social dialogue about introduction of multi-pillar pension reform

• different calculation of pensions

• introduction of early retirement

• possibility to receive old-age pension along with earning wage or self-employment

• equal pension conditions for widows and widowers

• abolishing statutory minimal income of pensioner

• increasing retirement age

Changes in pension scheme

Negative impact of pension reform • Financial stability of old-age pension insurance has been

deteriorated by redirection of 9 % of contributions into second saving pillar

• Deficit of PAYG pillar will grow significantly

• Multi-pillar reform will lead to fiscal deficit of the state - stability pact of the EU: 3 % of deficit should be fulfilled

• Stock market is not developed enough and pension funds have problems to place assets

• lack of money will lead to reduction of pension indexation

• II pillar does not solve the expected demographic problem

• non-contributory benefits are needed to protect elderly against poverty

• standards of the ILO Convention No. 102 for old-age pension would not be sustainable

• Retirement age for women rises from 53-57 to 62• women who were born in will retire as 62 in

• without children 1953 2015• with one child 1955 2017• with two children 1958 2020• with 3-4 children 1960 2022• with 5 and more 1962 2024

• Retirement age rises for men from 60 to 62• all men who were born in 1946 and later will retire as 62

year old from 2008

Increasing retirement age by 9 month every calendar year since 2004

Pension insurance contributions• Type Contributors Contributions in %• of Insurance Only I. Pillar I. Pillar II. Pillar• Employer 14 5 9• Employee 4 4• Old-age Pension Self-employed 18 9 9• Insurance Voluntarily insured 18 9 9• State 18 9 9• SIA 18 9 9• Employer 3• Disability Pension Employee 3• Insurance Self-employed 6• Voluntarily insured 6• State 6• _______________________________________________________________________• Pension Insurance – Total 24• _______________________________________________________________________• Employer 4,75• Reserve Self-employed 4,75• Fund of Voluntarily insured 4,75• Solidarity State 2•

•

•

•

•

•

Pension beneficiaries of EU, 2003 Source: Eurostat

0.0

5.0

10.0

15.0

20.0

25.0

30.0

IT DE EL(1)

SE LV PT BE EE AT ES HU UK FR FI DK LT SI(2)

CZ LU NL MT PL CY SK IE

Priemerný počet poberateľov dôchodkov 2003 (% z populácie)

populácia vo veku 60 a viac rokov (% z populácie)

Population structure in Slovakia, 1990 and 2002

250 200 150 100 50 0 50 100 150 200 250

0 - 4

10 -14

20 -24

30 -34

40 -44

50 -54

60 -64

70 -74

80 -84

Men02 Womem02 Men90 Women90

Women Men

x100

Source: SO SR

Number of Pensions Development, 2002, 2003, 2004 and 2005

Source: Social Insurance Agency

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1 000 000

2002 2003 2004 2005

Old Age Pension Early Retirement Pension Disability Pension

Widows Pension Widowers Pension Orphans Pension

Number of old-age pensions by benefit amount, 2003 and 2004

Source: Social Insurance Agency

31 524

44 672

517 942527 334

38 216

15 507

1 3390

3860 90 0 43

0

0

100 000

200 000

300 000

400 000

500 000

600 000

Sk

do 4 899 4 899 - 9199

9 200 -14 999

15 000 -19 999

20 000 -24 999

25 000 -29 999

30 000aviac

rok 2004 rok 2003

Number of old age pensions divided under their value and gender

Source: Social Insurance Agency

3 849

27 675

235 436

282 506

29 951

8 265902 437 258 128 70 20 39 4

0

50 000

100 000

150 000

200 000

250 000

300 000

in SKK

men 2004 3 849 235 436 29 951 902 258 70 39

men 2003 4 061 257 270 13 573 0 0 0 0

women 2004 27 675 282 506 8 265 437 128 20 4

women 2003 40 611 270 064 1 934 0 0 0 0

do 4 899 4 899 - 9 199 9 200 - 14 999 15 000 - 19 999 20 000 - 24 999 25 000 - 29 999 30 000and more

Development of Number of II Pillar Contributors, 2004-2005

Source: Social Insurance Agency

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

insured 932 720 1 021 270 1 047 026 1 080 316 1 103 575 1 139 586 1 178 084

stepped over 19 500 35 542

to 31 May Jul August October January February March

Number of II Pillar Contributors by age, 1 May 2005

Source: Institute for Financial Policy

138 850

359 000

267 501

50 003

270 18

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

15-25 26-35 36-45 46-55 56-65 nad 66

Share of pension fund management companies (PFMC) assets at the market

Source: MLSAF

5%

31%

6%12%

17%

29%

1. AEGON d.s.s. 2. Allianz - Slovenská d.s.s. 3. ČSOB d.s.s.

4. ING d.s.s. 5. VÚB Generali d.s.s. 6. Winterthur d.s.s.

Revenues and Expenditures of SIA on Old Age Pensions, 2004 - 2010

Source: Social Insurance Agency

68 68571 866

60 638

79 222

54 775

89 031

51 415

95 534

53 107

99 719

54 924

105 529

56 763

110 429

59 130

115 203

0

20 000

40 000

60 000

80 000

100 000

120 000

in SKK

Budget2004

Proposal for2005

ExpextedBudget

2005

Proposal for2006

Forecast for2007

Forecast for2008

Forecast for2009

Forecast for2010

Revenues Expenditures

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

PL

SK

AT SI

BE IT LU

MT

HU

FR

EL

EU

25

ES

DE

CZ

NL

LT

LV IE CY

PT FI

EE

UK

DK

SE

2000 2004

Employment rate of persons aged 55-64, EU-25, 2000-2004, in %

Source: Eurostat

Life expectancy at birth by gender, EU-25, 2002

Source: Eurostat

0

10

20

30

40

50

60

70

80

90

eu25

 

be 

cz 

dk 

de 

ee 

gr 

es 

fr  ie it  lv  lt  lu 

hu 

mt  nl 

at 

pl 

pt 

si 

sk  fi 

se 

uk

men women

Social Insurance Agency (SIA)• Is public-service organisation established to carry out

social insurance.

• SIA is a liaison institution to communicate between appropriate institutions and beneficiaries and between institutions of member countries of the European Union.

• SIA is a legal person and the headquarters is registered and established in Bratislava.

• It has also branches on the whole territory of Slovakia.

Social Insurance Agency (SIA)

• is only institution governing: • pension insurance (which consist of old-age insurance and

disability insurance),

• sickness insurance,

• occupational injury insurance,

• unemployment insurance,

• guarantee insurance,

• Solidarity Reserve Fund and• redirect contributions to pension funds (II pillar).

Bodies of the Social Insurance Agency

• Supervisory board

• Board of Directors

• Branches Directors

Supervisory Board of the SIA

• is the tripartite governing body.• it has 15 members:

- 5 designated by representative associations of trade unions and interest associations of citizens, representing beneficiaries of pension benefits,

- 5 designated by associations of employers, and- 4 designated by the Government.

Supervisory Board members • representing associations of trade unions

and interest associations of citizens are as follows:

- two members are nominated by the Trade Unions Confederation of the Slovak Republic – KOZ SR (representing employees – contribution payers),

- one member is nominated by the Slovak Pensioners’ Union (representing pensioners – beneficiaries of old-age pensions),

- one member is nominated by the Slovak Union of Disabled (pensioners – beneficiaries of disability pensions),

- one member is nominated by the Slovak Humanitarian Council (representing NGO acting in social field)

Supervisory Board members

• representing associations of employers

are as follows:- three representing AZZZ (Federation of

Employers‘ Associations of the Slovak Republic)

- two representing RUZ (Republic Union of Employers).

Supervisory Board members• Four members are designated by the

Government.

• The president of the Supervisory Board is the Minister of Labour, Social Affairs, and Family.

• Except for the President, Members of the Supervisory Board are elected and removed by the National Council of the Slovak Republic (the legislature).

• The office period of the Supervisory Board is five years.

Supervisory Board’s responsibility • Checks economic management of the SIA regarding all

insurance funds• Checks adherence to the Social Insurance Law and

other general binding legal regulations• Discusses draft financial statement of the SIA, annual

report• Imposes the Board of Directors to take measures to

remove drawbacks found out,• Approves salary and other emoluments of the Board of

Directors• draws up a report about auditing of the SIA

Board of Directors of SIA• Consist of five members:

- President of the Board and

two Vice-Presidents are nominated by the MLSAF,

- one member - by representative associations of trade unions and interest associations of citizens

- one member - by representative associations of employers.

Board of Directors of SIA

• Members of Board of Directors are appointed and removed by the Government of the SR and the office period is five years

• Member is non-substitutable in performing his/her office

• Controls the SIA

• Approves the annual report of SIA and submitting it to the Supervisory Board

Board of Directors’ responsibility

• Discusses draft budget of the SIA with assumed development for next years and financial statement of the SIA

• Approves the statutes of the SIA, rules of organization, work order, payment rules, rules of inspection, rules of funding and economic management and also its own rules of procedure

• Appoints and removes managerial workers of the Head-office of the SIA and directors of branches of the SIA

Conclusions

• Good social security governance needs social dialogue and consensus among all actors (Government, trade unions and employers)

• All partners are responsible for building up the trust among public in the institution providing social security

• Members of the Supervisory Board as well as the Board of Directors should cooperate with pension specialist and be familiar with their roles in the organization.

Thank you for your attention!