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Prepared by David Moore.
The railways were a leading nonpayer to the social security funds in the mid- to late 1990s. Agreement was later reached for the railways to reimburse the social security funds (using privatization receipts transferred from the National Property Fund to repay old debts); in 2000 these repayments accounted for Sk 6 billion of contributions to the Social Insurance Agency—and for practically all of the improvement in reported revenues that year.
This ceiling was based on a minimum wage of Sk 4,000. However, although the minimum wage was increased to Sk 4,920 in October 2001, the maximum assessment base has remained unchanged.
The accompanying Financial System Stability Assessment document reviews the third-pillar supplementary pension insurance companies in Slovakia.
The provision for automatic indexation contrasts with the current system in which the parliament must approve pension increases. However, this provision will not apply until 2004; Parliament will still have to approve the indexation increase in 2003.
This would have implied a maximum assessment base of some Sk 45,000 per month, representing a large tax increase for upper and especially upper-middle income earners, and their employers. The MLSAF estimates the revenue impact of the parliament’s decision to be quite small in the near term, because only about 2-3 percent of employees earn more than the maximum assessment base. In the longer term, the MLSAF’s baseline projections are annual losses equivalent to around 2 percent of contributions.
This refers to the sum of current-price flows, rather than net present value.
These costs are estimated at about 0.3 percent of assets and include, for example, setting up client accounts.
If the second pillar is public, diverted contributions remain within the consolidated general government, that is, the diversion of contributions does not increase the fiscal deficit. Other EU accession countries are currently discussing with Eurostat the possibility of including the private second-pillar pension insurance companies as part of general government, for the purposes of the Maastricht fiscal deficit and debt criteria.
Explaining the case for increases in retirement ages is a difficult task, but has been done elsewhere. Butler (2001) reviews the political economy of a single-issue Swiss referendum in 1998 to block an approved increase in the retirement age for women from 62 to 64; the referendum was defeated by a 60 percent majority.