BET YOU THOUGHT SOCIAL SECURITY HAD PROBLEMS: EASTERN EUROPE FACES PENSION COSTS AS HIGH AS A QUARTER OF GDP

Transition economies in Eastern Europe face the same problems as Western Europe with pension provisions: aging populations, decreasing salaries and industrial output, and rising unemployment.

“But it is important to note that transition countries do not have the luxury of building up pensions slowly. They have to make the leap from a state monopoly to the private sector,” said Michal Rutkowski, Washington-based sector leader for pensions and labor market operations in the World Bank’s Europe and central Asia department.

“We don’t have the luxury to wait 50 years,” Mr. Rutkowski said at a recent conference in London on “the future of European pensions” organized by the Royal Institute of International Affairs.

He noted that without reform, spending on state retirement and disability pensions in Poland would be 22% of gross domestic product by 2020, compared with 14% as an average in the Organization for Economic Cooperation and Development countries. This rises to 27% and 18%, respectively, in 2050.

As in Western Europe, the Eastern Europe reforms are looking to a three-pillar financing of the future pension system:

* A compulsory state pension plan, to which employers and employees contribute.

* A supplementary state pension plan to which employees and employers contribute. These typically are compulsory but can be voluntary, and they may or may not be combined with an employer’s pension plan.

* A voluntary private pension plan, with only employees contributing.

Other speakers expressed fears of increasing regulation of pensions at a European level as Western Europe moves to a single monetary system — because of the continent’s history of state intervention.

“We have a long tradition of state involvement in France going back to Louis XIV,” said Vincent Vandier, executive director of the French pension fund group Association Francaise des Regimes et Fonds de Pension.

Crain News Service