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2019/04/18 / Erste Group Research

CEE Special Report: Downsizing of private pension pillar

Given the demographic challenges, reliance on the PAYG system implies lower benefits for pensioners, a need to increase social contributions or retirement age in the future. As a decision is needed in a matter for decades rather than immediately, the governments are focused on maximizing current consumption through fiscal easing increasing contingent liabilities.

The first country to introduce the private pension system, Hungary, was also the first to dismantle it in the aftermath of global financial crisis that exposed the Hungarian government to a difficult situation – a need to consolidate during the downturn. In Poland, the downsizing of the private pension pillar was carried out in a couple of steps. Slovakia faced a reduction in contributions to pension funds, similar to those seen in Poland in the first phase but began to raise them in 2016, while in Romania contributions have been gradually growing until 2018.

How (not) to do fiscal easing: The fiscal stimulus in Romania (increase in public wages, VAT cuts) boosted the economy, but put the headline budget deficit just shy of 3% of GDP in 2017. The risk of Romania exceeding the limit of 3% in 2018 and/or 2019 remain considerable. It is currently under the Significant Deviation Procedure together with Hungary, due to high structural deficits. Slovakia seems to be next in the “fiscal easing” line, with proposals to lower taxes, increase the minimum wage or extend maternity benefits.Due to the upcoming elections, Poland showed all its cards. Financing the generous fiscal package without breaching the 3% deficit limit was questionable until the government revealed plans to overhaul the pension system.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-


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