Pensions on the Run

Policy Papers_pensions

We have the pleasure the present you the fourth of our policy papers series. The comparative study investigates the pensions response of the governments of three CEE countires: Slovakia, Bulgaria and Poland, in an attempt to discuss potential measures, necessary for either financial balancing of the systems or their structural changes. Enjoy your reading!

Download full pdf: 4Liberty_Pension_web

Introduction

Financial crisis which started at the end of 2007 resulted in Europe not only in economic recession but also in fiscal crisis. Average deficit in the EU27 in 2009 reached as much as 6,7% of GDP, and at that time not all hidden fiscal mines had yet exploded. Naturally, it resulted in pressure on consolidation of public sector balances. As the public pension schemes represent the most expensive government policy, they became the target for cost cutting in most of the countries.

Individual countries have chosen different approaches and different measures to tackle the consolidation problem via pension system. Their selection was highly dependent on the following factors:

  1. Size of current public deficit and public debt of the country

  2. Size of current deficit of pension system and availability of alternative measures

  3. Size and urgency of aging problem (demographic changes)

  4. Political acceptability of pension reform

Some countries reformed their public pension schemes with respect to the problem of ageing before the crisis. Most developed pensions systems have already implemented automatic balance mechanisms and the main task of governments was to sustain the public and political pressure calling for unblocking these mechanisms, which limit the growth of pension’s bill during the period of growing unemployment or negative economic growth. On the opposite end of the spectrum, other countries had to implement deep reforms which significantly and permanently influenced the generosity of the pension schemes. The level of aggressiveness of these measures was highly dependent on willingness of the political class to enterthis “forbidden”zone, as restrictive policy in the pension area usually leads to significant drop in popularity of relevant parties. Therefore, the size of actual public deficit and unavailability of alternative measures facilitated the reluctance of political class in adopting these reforms.

In this paper, we analyze the “pension” response of governments in Slovakia, Bulgaria and Poland during the post-crisis period with respect to sustainability of the PAYG* systems. In the first part we describe the political context and adopted measures. We outline and compare basic parameters of public pension schemes in these countries. In the second part, we analyze and compare the qualitative parameters of post-reform pension systems. We try to answerthe question whether popularlabeling of PAYG schemes as unsustainable is correctly used, or some changes in their parameters would allow for their conditional sustainability. In the last part we discuss potential measures, necessary for either financial balancing of the systems or their structural changes.

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