This week's The Business carries an interesting article by Cato's Marian Tupy on how Slovakia is leading the way on privatizing pensions:
Politicians in Europe and America who remain in denial about the huge black holes at the heart of their state pension systems should take a look at the remarkable reforms pushed through by Slovakia. That tiny Eastern European country, already famed for its flat tax, launched its pension reform on 1 January last year.Read the whole thing. The transition seems to have been managed quite effectively - convincing the public with clear arguments and giving workers choice in the amount of risk they want to take on - and hopefully it will be widely emulated.
Under Prime Minister Mikulas Dzurinda’s new system, Slovakia’s 2.2m workers were given a choice: they could either remain fully reliant on the pay-as-you-go pension system or take a part of their social security contributions and invest it in personal retirement accounts managed by a number of different investment funds.
Social security contributions in Slovakia amount to 28.75% of gross wages. Workers can now put 9% into their personal retirement accounts and 9% goes to the old system. The balance covers other types of insurance or administrative costs.
So far, roughly 1.1m people, or 50% of the eligible workers, opted for the personal retirement account, and it is expected that an additional 300,000 to 400,000 people will switch before the 30 June deadline.