Action Needed to Persuade CEE Plan Sponsors To Step up to Pensions Plate

13 August 2012 (PLANSPONSOREurope.com) – As Slovakia becomes the latest central and eastern European state to reclaim funds from private sector pensions for the state, more needs to be done to persuade the region’s plan sponsors to make occupational pensions more viable, Dariusz Stańko at the Polish Chamber of Pension Funds has told PLANSPONSOR Europe.

Reuters reports Slovakia has become the third country in the European Union's former communist bloc to reclaim funds from private sector pensions for the state on and plans to siphon off 300m euros this year and next to help reduce its budget gap.

The move, which echoes action already taken by Hungary and Poland, could help the euro zone's second poorest economy by per capita income make good on a promise to cut its fiscal gap to less than 3% in 2013.

Stańko told PLANSPONSOR Europe: “The state in our region usually moves the money from the funded pillar to the unfunded pillar not really because pension funds are so bad in terms of performance or ability. It is more because of the fiscal issues and the state of the euro.

“Employers are not very eager to take the lead because this is simply about the money. In Eastern Europe we don’t have the tradition of occupational pension schemes. We used to have Communism and domination of state ownership. When the private companies entered in the 1990s we didn’t have the tradition so people didn’t think about pensions from the employers.

“In Poland there are about two or three thousand pension schemes that are run by the biggest companies that can afford to run these schemes and in many cases these companies are international so when they enter Poland they have this as a corporate policy and corporate culture to offer a pension plan. The problem in our region is that the labour market is very tough and bearing in mind there is no tradition of discussing the employer contributions as part of remuneration this is not a good climate of demanding such an action and employers are really scared of the costs and they lack the skills because setting up a pension scheme in our region is quite complicated.
“From the point of view of the welfare of employees it would be fantastic if employers try to fill the gap because moving money from the funded pillar to the state pillar means pensions will be lower.”

Fergal McGuinness, Global DC leader and Growth and Innovation leader at Mercer, told PLANSPONSOR Europe that plan sponsors in the region need to step up to the plate to facilitate the process of encouraging people to save.

“Some time ago there was a study done on attitudes towards smoking in California before and after a ban on smoking in bars and restaurants was implemented. What they discovered was attitudes changed quite dramatically and in a positive way following the ban. If you force people to save and that goes well one may find a supportive attitude emerging. DC plans are much better positioned if the individual contract rights are protected which wasn’t the case in Hungary but was the case elsewhere. Coercion and doing it for people as opposed to educating and hoping they will do the right thing is probably the way to go. Employers have an excellent opportunity to participate in that. Employers in the future in the region will be less paternalistic in paying for things but they should do a better job of facilitating things so the role of a sponsoring employer shifts from taking all on the costs and risks to helping people to save.

PLANSPONSOREurope Staff
editors@plansponsoreurope.com