East European pension reforms

  • 2003-06-19
  • Jean-Luc Testault

Confronted with the quasi-collapse of the pension schemes they inherited from the communist era, East European countries now preparing to join the EU have already undertaken wide-reaching and, in many cases, painful reforms.
"'New Europe' is a testing ground from which Western Europe could glean a lot of ideas," said Maija Kreslina, a Latvian political scientist now living in Paris who specializes in pension schemes.
"After the collapse of communism in 1989-90, East European countries were forced to construct new systems from scratch," she said.
Pensions were relatively generous in the Soviet-era "scarcity economies:" men usually retired at 60 and women at 55. In some sectors favored by the state regimes, workers retired even younger.
The first wave of pension reforms came in the mid-1990s. A second wave is now in preparation in countries like the Czech Republic and Slovakia, which have adopted a more cautious approach.
The first change made in nearly all the future EU states has been to raise the retirement age -- by 2- 3 years for men and 3- 8 years for women.
By the end of the decade, most workers across central Europe will have to wait until 62 or 63 before putting their feet up.
In Estonia, Hungary and Latvia, the retirement age will be strictly identical for men and women by around 2010, which will significantly lengthen women's working life.
Systems that provided for higher pensions or early retirement have in many cases been abolished, as is the case in the Czech Republic and Lithuania.
Austria, France and Germany are only now considering reforming their costly pay-as-you-go pension schemes. Government plans to raise the retirement age in France and Austria have triggered massive countrywide strikes and protests.
Bulgaria, Estonia, Lativa, Hungary and Poland have already made it obligatory for a percentage of employers' and employees' contributions to be allocated to private pension funds. While only half the future EU members have made personal pension plans compulsory, all have brought in voluntary complementary schemes. In a region where the average pension is 200 euros - 300 euros or less, reforms that increase the weight of private schemes have been generally welcomed by the public, according to experts.