Pension Reform Workshop Leogrand Hotel Chisinov, 10-11 June 2008 Pension Reform in the Slovak republic Experiences and Recomendations for Moldavian Government Pension Reform Workshop Leogrand Hotel Chisinov, 10-11 June 2008 Marek L e n d a c k y Slovak Republic

Fully-funded 2nd pillar in brief start of operation: January 1, 2005 number of participants: about 1.5 million people out of 2.2 employed number of pension companies: 6 (after wave of consolidation) NPV of assets as of 30 May, 2008: SKK 60.2 billion (EUR 2,0 billion) voluntary switch to multi-pillar pension system opened till from January 1, 2005 till June 30, 2006; then again from January 1, 2008 till June 30, 2008 9% contribution rate out of total 18% to old age pension fund Investment returns: 2,5% - 4,5% in conservative funds, 3,0% – 4,5% in balanced funds 3,0% – 5,0% in growth funds fee structure: 1% of each monthly contribution 0,065% of monthly NPV of assets of the pension fund

Macroeconomic environment 2005 2006 2007 Real GDP growth (% of GDP) 6,6 % 8,5 % 10,4 % Public finance deficit (% of GDP) 4,2 % 3,6 % 2,2 % Transition costs (% of GDP) 1,2 % 1,3 % Market capitalisation of shares (% of GDP) 9,48 % 8,78 % 8,50 % Market capitalisation of bonds 28,39 % 25,84 % 24,96 % Total turnover (bln. EUR) - turnover of shares - turnover of bonds 33,26 0,21% 99,79% 32,93 0,26% 99,74% 11,71 No of listed companies 13 10 IPOs

3 types of pension funds Overall conservative investments Portfolio in balanced and growth pension fund similar After initial „building trust“ phase more dynamism needed

Who is watching? ...five levels of control pension company bears primary responsibility for proper management of pension funds, individual retirement accounts must have a special watchdog system based on risk management National Bank of Slovakia oversees day-by-day life of each pension company depositary bank responsible for compliance of all transactions with the law reports all shortcomings to market watchdog external auditor checks the performance of DSS and pension funds clients themselves with a non-stop access to their individual retirement accounts and disclosure requirements, they see the performance of their DSS and/or pension fund may „vote“ and change their pension fund, even leave their DSS and switch to a rival company

Investment returns in first 3 years Investment returns around from 2,5% - 4,5% in conservative funds, 3,0% – 4,5% in balanced funds and 3,0% – 5,0% in growth funds More effort in the future have to be done to meet pensions level expectations

Favourable age structure

...some issues in 2nd pillar were questionable Initial small transfer problems Intermediary agents problems – lack of quality False signature of contracts „Swiss pension“ advertising... Relatively low investment returns...

...but some were seen as tremendous success Unified contribution collection Central registry of contracts in SIA preventing multiple switching No burden for employers resulting from 2nd pillar existence Very favorable age structure despite of free switching matrix Cleaning of registry of persons on behalf state pays contributions to SIA Increased awareness of necessity think of future pension situation and thus increased interest of 3rd pillar products ...and in 3rd pillar Transformation so called pension insurance companies (not far from pyramidal schemes) to standard voluntary pension funds

Thank you for your attention!