CZECH REPUBLIC - Czech pension-overhaul plans are positive for stocks, bonds and the koruna and may help the country win a higher credit rating, Nomura International said.
The government wants to allow people to divert part of their retirement-fund payments to private accounts from the state-run pay-as-you-go system. The revamp, scheduled to come into effect in 2013, will cost 20bn koruna ($1.12bn) a year and will be financed from a switch to a unified 20% value-added tax rate, under the government's proposal.
The changes come at a time when other eastern members of the European Union are reversing overhauls of state pension systems they carried out a decade ago as they struggle to reduce budget deficits in the EU-wide push to bring runaway deficits and debt under control. Hungary abolished its mandatory private pension system, while Poland is scaling back its size.
Poland and Hungary "are raiding their pensions systems for easy money, unwinding previous reforms that took over a decade to implement," London-based Nomura economist Peter Attard Montalto, wrote in an e-mailed note today. "The Czech Republic is undertaking a set of credible policies that put it into in stark contrast with its neighbours."
The Polish government has proposed cutting the amount of contributions to private pension funds to 2.3% of workers' pay from 7.3% to help reduce the budget deficit and public debt. In Hungary, the government of Viktor Orban redirected most assets from private-pension funds to state coffers.
The Czech plan would be "a net positive" for equities given additional savings being diverted and held in equity funds and also "doubly net positive for bonds", Montalto said.
Based on an estimate that half the savings will be held in bonds and half in stocks, the plan would create 6bn koruna additional bond demand, while bond supply would be reduced by 14bn koruna, Montalto said, citing his calculations.
The Czech Republic's A debt rating may be raised if the government follows through on pledges to reduce spending, including an overhaul of the pension system, Standard & Poor's said on 10 August. S&P revised its outlook on the rating to "positive" from "stable".
"These changes should bring net benefits to local markets and to investor appetite for the country," Montalto said.
CZECH REPUBLIC - The Czech government is considering setting up a "low-cost" state-run pension fund to oversee people's retirement savings which may put pressure on private pension managers to keep fees low.
CZECH REPUBLIC - Prime Minister Petr Necas said the three ruling-coalition parties have moved closer to an agreement on how to overhaul the pension system which he sees as the "crucial" task for the government.
CZECH REPUBLIC - Czech Prime Minister Petr Necas said his coalition government will find a compromise on overhauling the pension system within two months that strengthens private savings for retirement.
CZECH REPUBLIC - Czech Finance Minister Miroslav Kalousek wants changes to the pension program, aimed at reducing the fiscal deficit and improving the country's credit rating, to take effect by 2012.
CZECH REPUBLIC - The Czech Republic's debt rating may be raised if the new government follows through on pledges to reduce spending, including an overhaul of the pension system, Standard & Poor's said.