People need to save for retirement on time
Date of issue: 07. 03. 2022 | Source: Lidové noviny Section: Economy | page 12 | Author: Ivana Pečinkova
* LN You also have pension reform in the government’s program statement. What will it look like?
It annoys me when I see news reports or read articles and see the pictures of our elders today – they won’t be affected. They cannot and must not, because they have no chance of adapting to the new system. The pension reform will affect those under 45. Because when we change the rules, everyone should have enough time to adapt to the changes. Save if necessary. And it won’t happen in two or three years. The pension reform will therefore affect people under the age of 45. If we do nothing, these people will not have a pension of 40% of the average wage, but maybe 25%. The idea of future pensions is that there will be a guaranteed, solidarity part and then a part that people should spend their entire working life on. It is simply not possible to rely solely on a state pension. Just because of demographics. The highest ratings will begin to withdraw around 2030. There, the relationship between contributors and beneficiaries begins to break. This is why we must persuade the younger generations to start saving for their retirement in time.
*LN Will you offer a state-administered or state-guaranteed savings pillar, as is the case in many other states?
It’s one of the options, but I don’t think it’s the most important.
* LN And what will be most important?
Changing people’s attitudes. A pension is not an insurance policy, like when people insure a house or a car, neither is a pension an insurance event. We – all the politicians of these 30 years – have not explained to people what the system is. I still hear: I paid high pensions all my life, and now I have little. But the current system means that we pay pensions to today’s retirees with our social security contributions. And that we rely on younger people to pay enough for us to retire when we retire. We mistakenly call it social insurance, but it’s actually a tax. Equal tax – everyone pays the same percentage of their income. I am in favor of social insurance being renamed social tax.
* LN How do you motivate people to save for retirement?
We have to give them economic tools. The first thing to support family cohesion is the possibility of directly paying one percent of the gross salary to retired parents. When you have an average salary of around 38,000, that’s 380 crowns per month. And if someone has three children, it’s 380 times three, or about 1,100 crowns per month for retirement. The second thing, for example, is to encourage employers to contribute to future pensions. It is now a form of supplementary pension insurance, but we believe it can be stronger. And I don’t really mean that it will be a pension reform. This will change the system settings. Complete change consistent with the notion of reform is simply not possible.
* LN And where are you in preparing for these changes?
We have all the documents. From the Bezděk Commission, from the Neruda Commission, from the OECD, from the World Bank – What we don’t have – and the hardest thing to find – is a political agreement on how to change this. We tried in 2011 that if you only do it with a government majority, it’s wrong. We introduced the second pillar and another government abolished it. We have an agreement in the coalition that it will not be a reform or a change according to the ideas of a political party. We will have to reach an agreement with at least part of the opposition, and everyone will have to make sure that it is stable. It doesn’t make sense without it.
* LN Will you be able to do all of this during your tenure?
We must. We have in the program statement that we will present at least the first part by the end of next year. We therefore have two years to apply it legislatively. The hardest part will be finding a match. As for the budget.
* LN What was, is and will be the most difficult to find a corresponding budget?
Compulsory expenses. All current state tax revenues do not at all cover current state expenditures. I’m not talking about investments at all. We are in a period where all investments and part of the normal functioning of the State are in debt. This is an issue we are debating, especially with the YES movement. He doesn’t see that. The real priorities of the government will always be reflected in the budget. In our case, it will be in our government’s first budget for 2023.
* LN People is interested in maintaining the State’s contribution to construction savings…
The same goes for other budget adjustments, even if journalists don’t like it that way – we’ll consult and decide first, then explain and defend it. The attitude of past governments, when individual ministers said, I am for or for that, was wrong. It just caused chaos in an open debate. And when I said that we were going to check all the compulsory expenses, all of them. Including a contribution to building savings. The fact that the government voted unanimously during the budget negotiations is the result of the fact that each of the ministers did not say, I want more and so on.
* LN’s Czechs aren’t very willing to save for retirement just yet…
It’s a generational thing, but it’s still getting better. It makes sense: older people are conservative, have no experience other than having money in a bank or investing in housing. Investing in your own home isn’t bad at all, I wouldn’t criticize that. But other tools commonly used in Western countries are mainly used by young people. And one of the objectives of the pension reform is to make young people think more about securing their retirement. When we offer a tool that has a positive economic impact, we see that society reacts very well. He can count. By the way, it is also about building economies, which is not building at all. These are savings for the state, and when you look at the data, even people who can afford more are saving exactly as much as the maximum state support applies. And you don’t need to do educational tours, lectures, explain. People will figure it out themselves…
* LN Still to be budgeted. The previous government budgeted 7,000 public sector employees this year, that’s a lot, isn’t it? And you canceled it.
It’s a lot. And it is necessary to look at where the budgeted money should have gone. Much to regional education, where there are thousands of vacancies. And also – and this is the worst – the number of civil servants will grow: new functions, new laws, new agendas. This must stop and the trend must reverse. Those who finance the administration of the State, that is to say those in the private sector, today have much lower salaries and wonder why. Second, it cannot be financed. Logically, the number of seniors is increasing, so the number of people of working age who pay pensions, health insurance and state operations decreases. So running a state can’t be that expensive. And the big savings potential lies in digitization. You need to invest in good computer systems, but it will pay off. You always encounter this necessity – every time you contact the authorities, someone wants your data, the state is not able to pass the data inside.
*LN It’s no secret that the state’s computer systems are woefully outdated…
It’s been working for years. But we are able to take important steps in our mandate.
* LN Which will be the first?
We have the two biggest problems in the area of IT in the Ministry of Finance, that is to say in the collection and administration of taxes. And then to the Ministry of Labor and Social Affairs – administration and payment of pensions.
* LN emission quotas also contribute to the increase in energy prices. Do you still intend to negotiate a reduction in their price?
This could be one of the key topics of the Czech EU Presidency. The system is not working as expected. It has become normal security. The original idea was that companies would buy allowances as an indulgence for air pollution and that would increase the pressure on them to invest in greener operations. When it was set up, the idea was that the maximum price would be 30 euros per quota. And today it’s 90 to 100 euros. The price was increased not only by the growing need for allowances, but also by the fact that the EU withdrew part of the allowances from the market a few years ago. It is therefore a hotly debated topic, especially informally at many levels within the European Commission and the EU.
* LN But reducing allocations will reduce budget revenue …
But this will have a direct impact on inflation. This bothers borrowers, making loans more expensive. But much more to those who save. We are a nation of savers who have been retiring for years. And now, because of inflation, the value of the money they have saved over years of hard work is dropping dramatically. I want to be on the side of those who have saved, and I will do my best to keep inflation normal, around 2 or 3%.