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CEE Transition from PAYG to Private Pensions: Income Gaps and Asset Allocation

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Listed:
  • Ales S. BERK

    (University of Ljubljana, Faculty of Economics)

  • Mitja COK

    (University of Ljubljana, Faculty of Economics)

  • Marko KOSAK

    (University of Ljubljana, Faculty of Economics)

  • Joze SAMBT

    (University of Ljubljana, Faculty of Economics)

Abstract

Rapid population aging driven by low fertility and increasing longevity requires further adjustments of the traditional pension frameworks in Central and Eastern Europe (CEE). In this article we analyze the pension systems of the Czech Republic, Hungary, Poland, Slovakia, and Slovenia and show firstly that fiscal limitations are expected to significantly reduce PAYG pensions in CEE countries given the current and projected demographic dynamics. Secondly, we show that existing private pension plans will not be able to fill the gap to the desirable replacement rate. Without implementation of additional pension saving plans during the active period, there is a threat that many individuals will fall below the poverty line after retirement. Thirdly, we argue that the success of such pension plans will crucially depend on asset allocation decisions. Hence, governments should implement financial literacy programs in order to promote less conservative, more profitable asset allocation decisions by individuals over the longer run.

Suggested Citation

  • Ales S. BERK & Mitja COK & Marko KOSAK & Joze SAMBT, 2013. "CEE Transition from PAYG to Private Pensions: Income Gaps and Asset Allocation," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(4), pages 360-381, August.
    • Handle: RePEc:fau:fauart:v:63:y:2013:i:4:p:360-381
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    2. Marcinkiewicz Edyta, 2017. "Factors Affecting the Development of Voluntary Pension Schemes in CEE Countries: A Panel Data Analysis," Central European Economic Journal, Sciendo, vol. 3(50), pages 26-40, December.

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    More about this item

    Keywords

    PAYG; private pensions; financial literacy; old-age income; Central and Eastern Europe; transition economics;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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