1. 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, June 2008
Marek L e n d a c k y
Slovak Republic

2. Fully-funded 2nd pillar in brief
start of operation: January 1, 2005
number of participants: about 1.5 million people out of 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

3. 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

4. 3 types of pension funds Overall conservative investments
Portfolio in balanced and growth pension fund similar
After initial „building trust“ phase more dynamism needed

5. 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

6. 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

7. Favourable age structure

8. ...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...

9. ...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

10. Thank you for your attention!