FOR: In Poland, the retirement age is being raised too slowly

As far as the changes in pension system are concerned, we may learn the most from the Czechs and Slovaks. Surely, we should make every effort in order to prevent the government from nationalizing funds gathered in the second pillar. Let’s hope Warsaw will not become another Budapest, says Mateusz Guzikowski, Civil Development Forum (FOR) economist.

FOR pays a lot of attention to pension systems reforms in the countries of our region. Which of those experiences may be used in Poland?

In Poland, retirement age is being raised too slowly. It is the most important conclusion one may draw from our publications. If we compare Poland, where the retirement age will be raised from 2013 by 3 months per year, with the process extended to 2040, to Latvia or Bulgaria, where the change occurred at the speed of 6 months per year, i.e. twice as fast, we can see how significant these differences are.

Which of the countries of our region is the best example to be followed by Poland?

We may learn the most from the Czechs and Slovaks. As in all countries of our region, after the fall of communism, they inherited a typical pay-as-you-go pension system discouraging from long professional activity. The specificity of Czechoslovakia was diversifying the retirement age of women depending on the number of children they gave birth to – from the age of 57 for childless women to the age of even 53 for women who gave birth to at least five children. Both the Czech Republic and Slovakia have adopted this model, but quickly and, what is most important, consistently, started to reform it.

In order to equalize the retirement age for women and men in Slovakia, the retirement age for childless women was raised at a very high pace, 9 months per year. For the other women – by 2 to 6 months, and for men by 6 months annually. As a result, the retirement age for women and men will be equalized and will be 62 in 2014.

In the Czech Republic, the pension system reform started very early, right after the split of Czechoslovakia into two independent countries. From 1995, the retirement age was being gradually raised for women and men. Then, under the Act adopted in 2011, a provision was introduced pursuant to which “for the insured born after 1977, the retirement age specified as 67 years shall be raised by the number of calendar months corresponding to the twofold difference between the year in which the insured was born and the year 1977.” That means that a person born in 1978 will work 2 months longer, i.e. 67 years and 2 months, whereas a person born e.g. in 1995 – 36 months longer: such person will retire at the age of 70. The fact that the Czechs did not set the upper limit for retirement age is a phenomenon on the world scale.

Aren’t the Czechs afraid they would work until death?

Of course, the retirement age is a subject of great political controversy. The said Small Pension Reform of 2011 was rejected by the Senate dominated by left-wing ČSSD. Having been reconsidered by the Chamber of Deputies of the Parliament of the Czech Republic where the right-wing ODS has a majority, the Senate’s veto was rejected. It is also worth mentioning that from 2013, the Czechs will introduce a capital-based pillar, i.e. they are moving in the opposite direction in comparison with Poland and e.g. Hungary.

However, leaving the politics aside, it is clear that the retirement age will not be determined at some ridiculously high level. I think that in the long-term perspective, the retirement age in the Czech Republic will be 70 or 72, which means that having retired, the Czechs will live another 14–18 years. Therefore, no one may claim “they will work until death”. This pseudo-argument is unfortunately quoted also in Poland. Instead of a matter-of-fact debate, politicians seem to play on people’s emotions…

It is an uplifting perspective for a bricklayer or a nurse…

No one says that people employed to perform heavy physical work (such as miners) have to work on a full-time basis in the pre-retirement age. They may be employed on a part-time basis or they may perform lighter work. Besides, parallel to the pension reform, a reform of the labour code should be introduced, making employment of persons at that age easier. In our economy, contrary to the popular opinion, we are short-handed…

According to the Central Statistical Office (GUS), unemployment exceeds 12 per cent.

Yes, but at the same time employers often cannot find employees with appropriate experience and qualifications. Along with the changes in the pension system, it is necessary to introduce reforms providing for protective measures that would increase the flexibility of the labour market. The inappropriate attitude of employees themselves is also a problem as they do not want to participate in additional training or retraining programs. We cannot deceive demography – we live longer and have to work longer so as not to “starve” when we retire.

The need for raising the retirement age in Poland is clear for people from our generation, but not for the older generation…

It is what makes me wonder the most. The older generation which will be affected by the reform raising the retirement age to 67 to a very small extent protest against it most strongly. I think that if there was a referendum on the pension system the reform would be blocked with votes of persons who will be affected by it to a small extent.

We do not know that for sure. However, we do know from our own history what may happen when a pension system reform is not based on strong and clear support of the public opinion. Miller’s government surrendered to miners’ demands and introduced an exception to the pension system. There was not enough strength to defend the long-term reform against diluting its effects. Wouldn’t it be worth carrying out a referendum to base the pension system reform on more reliable grounds?

It would be better if the government started to raise the retirement age immediately instead of risking a referendum. If the result of the referendum is a “no”, raising the retirement age will be postponed by at least a couple of years, and during that time we will experience the effects of the lack of workforce, which implies the economy will develop at a slower pace. Besides, by carrying out a referendum, we would establish some kind of a convention, which means that we would refer to this institution every time we attempted to reform the pension system, i.e. in fact we would postpone the reform ad calendas graecas.

Which experience of other countries should we not follow?

It is the lack of consistency. Pension systems are created for decades. Abandoning the most important assumptions already introduced, when difficulties arise after a few years, is unreasonable. Fortunately, if a government tries to destroy a pension system, citizens may minimize harmfulness of the solution to be introduced. The populist Slovakian Prime Minister, Fico, gave the Slovaks a chance to withdraw from the two-pillar system introduced by the cabinet of his predecessor, Dzurinda, and return to a one-pillar system. Not many Slovaks decided to take that step, which proved that the citizens trust the second pillar. Surely, we should make every effort in order to prevent the government from nationalizing funds gathered in the second pillar, as was the case in Hungary. Let’s hope that Warsaw will not become another Budapest.

Mateusz Guzikowski is an economist and expert on pension systems and labour market and the director of the “More Employment” (“Więcej Zatrudnienia”) program at the Civil Development Forum (FOR).

By Krzysztof Nędzyński


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