CZECH REPUBLIC - The Organisation for Economic Co-operation and Development has praised the transparent method in which the five main political parties have lodged pension reform proposals.
It said the way in which the proposals were put forward was as significant as the pension reform itself.
They were developed in 2005 by a special working group on pensions
One proposal would introduce a system of notional accounts, another would keeps a pay-as-you-go pension but carve out a defined contribution pillar from it.
A third reform proposed only parametric changes to the current pay-as-you-go pension while a fourth proposed a flat-rate pension. The fifth proposal was similar to the third but added a DC component to a pay-as-you-go pension.
The organisation said in its Economic Survey of the Czech Republic that the suggestions should be used by the next government as the basis for a final decision on pension reform.
However it did advise that in terms of financial stability the proposals could be strengthened by an automatic rather than discretionary procedure for adjusting pensions in payment.
The strength of the pensions-earnings link and the extent of public provision for retirement in each of the proposals was key, said the OECD.
Proponents of a stronger link between pensions and earnings would argue it increased incentives to work and to contribute to pension savings, because contributions are seen less as an implicit tax, it explained.
But it warned these advantages have to be weighed against the fact the proposals all entail high contribution rates and a large government involvement, while not fully addressing social safety net issues.
It also said the the tax treatment of pensions and welfare payments, not covered by the 2005 working group, would need to be addressed, particularly the system of subsidies and tax allowances on voluntary contributions to private pension funds, which currently generates little saving.
“Reform needs to take into account the growing international evidence that tax incentives are often costly and ineffective in inducing more saving,” it stated.
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