An Analysis of the Voluntary Pension Fund System in the Czech Republic

Abstract

The Czech Republic, as well as other transition countries, has been undergoing a fairly rapid process of ageing, since mortality has decreased - and life expectancy thus increased - in a context of diminishing fertility. This relatively fast change in age structure undermines the predominant pay-as-you-go (PAYG) pension systems in transition countries and leads to growing budget deficits in Hungary, Poland and Slovakia. So far, the Czech Republic has been spared this development, since it has kept unemployment extremely low, and has reformed the PAYG system thoroughly. Nevertheless, the growing budget strains and increasing ranks of pensioners are bound to put the Czech pension system under pressure, as well. If, as now seems likely, the current working generation cannot rely on the state to provide for its pensions by taxing future workers, it will become crucial to understand whether private voluntary pension funds can substitute the public pension system. An increase in private savings for retirement may represent an important factor in abating future problems in financing pensions.