Comment
2
COMMENT Žiga Andoljšek* The paper covers the topic well. The authors describe the reforms of the pension system in Britain, the erosion of private provision and proposals for a revival of contracting out. Their proposals involve a continuation of a mixed public–private system rather than a pure privatisation of pensions. It may be useful to put the British case in comparative context by describing pension provision in my country. In Slovenia receipt of a pension is a constitutional right – this is an important factor influencing the system of pension insurance. It is the reason why state pension participation is obligatory for everyone. Private pension provision is optional and is not deliberately encouraged. The population situation is as follows. Slovenia has 570,000 retired persons and only 890,000 in the active population – 1.5 employees for each retired person. The budget has to subsidise the pension system by €1.5 billion every year (out of a total cost of €4.8 billion). The fertility ratio is 1.57 and thus far below 2.10 which allows the population to remain constant. The fertility ratio is one of the lowest in the European Union. Slovenia has a ‘three pillar’ system. The first pillar is the state system and is compulsory; the second is the occupational pension (private or public depending on the employer); and the third is the optional private pension system. The provider in the first pillar is the state, on a pay-as-you-go basis. The providers of the second and third pillars are in principle public and private funds, but the public one, Kapitalska Druzba (KAD), is not at all effective: the cost is high, the returns are low, and it is a policy playground. KAD is still the biggest owner of many companies in Slovenia. Its privatisation, intended from 1991, is still not complete because of political interference. Public opinion is an obstacle to the reform of pensions in Slovenia. As a pension is a universal constitutional entitlement, many people are still strongly in favour of the state pension system. There has been no debate about how to shift the system from the public to the private sector. Despite the problems the system faces, the Prime Minister, Alenka Bratušek, regards health reform as a higher priority than pension reform. One of the reasons could be that many older people vote for left-wing parties and especially for DeSus – Democratic Party of Retired People of Slovenia – which is always one of the coalition parties in the parliament, and as such important for the government majority. More generally, public opinion supports the idea that the state is responsible for the welfare of the people. There has been no sharp break with the former socialist system: Slovenia is a democracy but there is no broad support for the free market economy. Reforms have been made to the Slovenian pension system since 1991, particularly after 1999, under pressure from the IMF and the World Bank. The latest changes were made in 2012. *Assistant Professor, Faculty of Business Studies, Catholic Institute, Ljubljana, Slovenia. Email: [email protected] © 2014 Institute of Economic Affairs
Transcript of Comment
COMMENT
Žiga Andoljšek*
The paper covers the topic well. The authors describe the reforms of the pension system inBritain, the erosion of private provision and proposals for a revival of contracting out. Theirproposals involve a continuation of a mixed public–private system rather than a pureprivatisation of pensions.
It may be useful to put the British case in comparative context by describing pensionprovision in my country.
In Slovenia receipt of a pension is a constitutional right – this is an important factorinfluencing the system of pension insurance. It is the reason why state pension participation isobligatory for everyone. Private pension provision is optional and is not deliberatelyencouraged.
The population situation is as follows. Slovenia has 570,000 retired persons and only 890,000in the active population – 1.5 employees for each retired person. The budget has to subsidisethe pension system by €1.5 billion every year (out of a total cost of €4.8 billion). The fertilityratio is 1.57 and thus far below 2.10 which allows the population to remain constant. Thefertility ratio is one of the lowest in the European Union.
Slovenia has a ‘three pillar’ system. The first pillar is the state system and is compulsory; thesecond is the occupational pension (private or public depending on the employer); and thethird is the optional private pension system. The provider in the first pillar is the state, on apay-as-you-go basis. The providers of the second and third pillars are in principle public andprivate funds, but the public one, Kapitalska Druzba (KAD), is not at all effective: the cost ishigh, the returns are low, and it is a policy playground. KAD is still the biggest owner of manycompanies in Slovenia. Its privatisation, intended from 1991, is still not complete because ofpolitical interference.
Public opinion is an obstacle to the reform of pensions in Slovenia. As a pension is auniversal constitutional entitlement, many people are still strongly in favour of the statepension system. There has been no debate about how to shift the system from the public to theprivate sector. Despite the problems the system faces, the Prime Minister, Alenka Bratušek,regards health reform as a higher priority than pension reform. One of the reasons could bethat many older people vote for left-wing parties and especially for DeSus – Democratic Partyof Retired People of Slovenia – which is always one of the coalition parties in the parliament,and as such important for the government majority. More generally, public opinion supports theidea that the state is responsible for the welfare of the people. There has been no sharp breakwith the former socialist system: Slovenia is a democracy but there is no broad support for thefree market economy.
Reforms have been made to the Slovenian pension system since 1991, particularly after1999, under pressure from the IMF and the World Bank. The latest changes were made in 2012.
*Assistant Professor, Faculty of Business Studies, Catholic Institute, Ljubljana, Slovenia.Email: [email protected]
© 2014 Institute of Economic Affairs
The state pension is now available from age 65; it requires 40 years of contributions and offers60 per cent of average salary (paid for in part by a levy of 20 per cent of earnings).
Slovenia faces greater pension problems than Britain. In addition to demographic pressures,there is greater dependence on the state. People rely on their constitutional right to a pensionand are not prepared to make individual savings. The state provides no serious incentives forsaving in private funds, and discussion about private substitution for public pensions isnon-existent. Coupled with other issues, such as the continuing power of state-ownedcompanies, this suggests there is a need for a wider debate encompassing broadersocial issues.
155economic affairs volume 34, number 2
© 2014 Institute of Economic Affairs
