Pension reform and Social Security Governance in the Slovak Republic Turin, June 2006 Mária Svoreňová

Statutory pension insurance 1. Pillar pay-as-you-go financed Social Insurance Agency (SIA) collects contributions and pays pensions regulated by the Act No. 461/2003 Coll.of Laws on Social Insurance 2. Pillar saving on personal accounts in pension fund management companies (PFMC) SIA collects contributions for pension funds pensions are paid by insurance company and by PFMC regulated by Act No. 43/2004 Coll. of Laws on Old-age Pension Savings

Pension insurance reform goals financial sustainability of scheme resist to the ageing of population reduce number of pensioners provide more decent pensions introduce principle of fair replacement rate equal rights of women and men in pension scheme increase employment of elderly

Trade Unions demands and expectations Protection of strong and sustainable PAYG pension scheme Introduction of wage based calculation of pensions but With a strong solidarity principle Providing a minimum pension benefit for low income workers Slower increasing of the retirement age for women and 60 years of retirement age for both genders Providing working places for people at the age before retirement To sustain claims of pensioners and insured persons reached in the old pension scheme (such as disability benefits, value of pensions etc.) Social dialogue about introduction of multi-pillar pension reform

different calculation of pensions introduction of early retirement possibility to receive old-age pension along with earning wage or self-employment equal pension conditions for widows and widowers abolishing statutory minimal income of pensioner increasing retirement age Changes in pension scheme

Negative impact of pension reform Financial stability of old-age pension insurance has been deteriorated by redirection of 9 % of contributions into second saving pillar Deficit of PAYG pillar will grow significantly Multi-pillar reform will lead to fiscal deficit of the state - stability pact of the EU: 3 % of deficit should be fulfilled Stock market is not developed enough and pension funds have problems to place assets lack of money will lead to reduction of pension indexation II pillar does not solve the expected demographic problem non-contributory benefits are needed to protect elderly against poverty standards of the ILO Convention No. 102 for old-age pension would not be sustainable

Retirement age for women rises from to 62 women who were born in will retire as 62 in without children with one child with two children with 3-4 children with 5 and more Retirement age rises for men from 60 to 62 all men who were born in 1946 and later will retire as 62 year old from 2008 Increasing retirement age by 9 month every calendar year since 2004

Pension insurance contributions Type Contributors Contributions in % of Insurance Only I. PillarI. Pillar II. Pillar Employer Employee 4 4 Old-age Pension Self-employed Insurance Voluntarily insured State SIA Employer 3 Disability Pension Employee 3 Insurance Self-employed 6 Voluntarily insured 6 State 6 _______________________________________________________________________ Pension Insurance – Total 24 _______________________________________________________________________ Employer 4,75 Reserve Self-employed 4,75 Fund of Voluntarily insured 4,75 Solidarity State 2

Pension beneficiaries of EU, 2003 Source: Eurostat

Population structure in Slovakia, 1990 and 2002

Number of Pensions Development, 2002, 2003, 2004 and 2005 Source: Social Insurance Agency

Number of old-age pensions by benefit amount, 2003 and 2004 Source: Social Insurance Agency

Number of old age pensions divided under their value and gender Source: Social Insurance Agency

Development of Number of II Pillar Contributors, Source: Social Insurance Agency

Number of II Pillar Contributors by age, 1 May 2005 Source: Institute for Financial Policy

Share of pension fund management companies (PFMC) assets at the market Source: MLSAF

Revenues and Expenditures of SIA on Old Age Pensions, Source: Social Insurance Agency

Employment rate of persons aged , EU-25, , in % Source: Eurostat

Life expectancy at birth by gender, EU-25, 2002 Source: Eurostat

Social Insurance Agency (SIA) Is public-service organisation established to carry out social insurance. SIA is a liaison institution to communicate between appropriate institutions and beneficiaries and between institutions of member countries of the European Union. SIA is a legal person and the headquarters is registered and established in Bratislava. It has also branches on the whole territory of Slovakia.

Social Insurance Agency (SIA) is only institution governing: pension insurance (which consist of old-age insurance and disability insurance), sickness insurance, occupational injury insurance, unemployment insurance, guarantee insurance, Solidarity Reserve Fund and redirect contributions to pension funds (II pillar).

Bodies of the Social Insurance Agency Supervisory board Board of Directors Branches Directors

Supervisory Board of the SIA is the tripartite governing body. it has 15 members: -5 designated by representative associations of trade unions and interest associations of citizens, representing beneficiaries of pension benefits, -5 designated by associations of employers, and -4 designated by the Government.

Supervisory Board members representing associations of trade unions and interest associations of citizens are as follows: - two members are nominated by the Trade Unions Confederation of the Slovak Republic – KOZ SR (representing employees – contribution payers), - one member is nominated by the Slovak Pensioners’ Union (representing pensioners – beneficiaries of old-age pensions), - one member is nominated by the Slovak Union of Disabled (pensioners – beneficiaries of disability pensions), - one member is nominated by the Slovak Humanitarian Council (representing NGO acting in social field)

Supervisory Board members representing associations of employers are as follows: -three representing AZZZ (Federation of Employers‘ Associations of the Slovak Republic) -two representing RUZ (Republic Union of Employers).

Supervisory Board members Four members are designated by the Government. The president of the Supervisory Board is the Minister of Labour, Social Affairs, and Family. Except for the President, Members of the Supervisory Board are elected and removed by the National Council of the Slovak Republic (the legislature). The office period of the Supervisory Board is five years.

Supervisory Board’s responsibility Checks economic management of the SIA regarding all insurance funds Checks adherence to the Social Insurance Law and other general binding legal regulations Discusses draft financial statement of the SIA, annual report Imposes the Board of Directors to take measures to remove drawbacks found out, Approves salary and other emoluments of the Board of Directors draws up a report about auditing of the SIA

Board of Directors of SIA Consist of five members: - President of the Board and two Vice-Presidents are nominated by the MLSAF, - one member - by representative associations of trade unions and interest associations of citizens - one member - by representative associations of employers.

Board of Directors of SIA Members of Board of Directors are appointed and removed by the Government of the SR and the office period is five years Member is non-substitutable in performing his/her office Controls the SIA Approves the annual report of SIA and submitting it to the Supervisory Board

Board of Directors’ responsibility Discusses draft budget of the SIA with assumed development for next years and financial statement of the SIA Approves the statutes of the SIA, rules of organization, work order, payment rules, rules of inspection, rules of funding and economic management and also its own rules of procedure Appoints and removes managerial workers of the Head-office of the SIA and directors of branches of the SIA

Conclusions Good social security governance needs social dialogue and consensus among all actors (Government, trade unions and employers) All partners are responsible for building up the trust among public in the institution providing social security Members of the Supervisory Board as well as the Board of Directors should cooperate with pension specialist and be familiar with their roles in the organization.

Thank you for your attention!