IDEAS home Printed from
   My bibliography  Save this paper

The Impact of Changes in Second Pension Pillars on Public Finances in Central and Eastern Europe


  • Balázs Égert


This paper studies the impact of recent changes in second pension pillars of three Central and Eastern European Countries on the deficit and implicit debt of their full pension systems. The paper seeks to answer the following questions: i) what is the impact on the sustainability of Poland’s pension system of the decrease in the pension contribution going to the second pension pillar from 7.3% to 2.3% in 2011; ii) what are the implications of the recent changes on gross replacement rates; iii) does the weakening of the Polish second pension system have a different impact on pension system sustainability than a similar move in a Hungarian-style pension system with a defined-benefit first pillar and iv) how does Estonia’s temporary decrease in pension contributions compensated by temporarily higher future rates affect pension sustainability in that country. The simulation results show that in our baseline scenario the Polish move would permanently lower future pension-system debt, chiefly as a result of a cut in replacement rates. But using a combination of pessimistic assumptions including strong population ageing, low real wage growth and a high indexation of existing pension benefits, coupled with bringing in tax expenditures related to the third voluntary pension pillar and an increase in the share of minimum pensions leads to higher pension system deficits and eventually more public debt at a very long horizon. The simulations also suggest that the Hungarian pension reversal reduces deficit and debt only temporarily, mainly because of Hungary’s costly defined-benefit first pension pillar: the weakening of the second pillar is tantamount to swapping low current replacement rates (in the defined-contribution second pillar) against high future replacement rates in the defined-benefit first pension pillar. Finally, results show that the Estonian move will increase public debt only very moderately in the long run, even though this result is sensitive to the effective interest rate on public debt. L'impact des modifications du deuxième pilier du système de retraite sur les finances publiques en Europe centrale et orientale Cette étude analyse l’impact des changements récents apportés au deuxième pilier du système de retraite dans trois pays d’Europe centrale et orientale sur le déficit budgétaire et la dette implicite du système de retraite. Cette étude cherche à répondre aux questions suivantes : i) quel est l’impact de la baisse en 2011 de 7.3% à 2.3% des cotisations de retraite finançant le deuxième pilier sur la soutenabilité du système de retraite polonais ? ii) quelle est la sensibilité de cet impact en fonction des caractéristiques du premier pilier ? iii) quel est l’effet de ces changements sur les taux de remplacement bruts ? iv) quel est l’impact sur la soutenabilité du système de retraite estonien de la baisse temporaire des contributions de retraite contrebalancée par leur hausse temporaire future ? Les résultats montrent que l’affaiblissement du deuxième pilier diminue de façon permanente la dette future du système de retraite en Pologne, grâce à une baisse des taux de remplacement. Néanmoins, sous certaines hypothèses pessimistes portant conjointement sur le vieillissement démographique, l’augmentation des niches fiscales encourageant l’épargne volontaire dans le troisième pilier et la hausse des minimum retraites, le déficit et la dette du système de retraite s’accroissent à très long terme. Les résultats montrent aussi que les changements du système de retraite en Hongrie ne diminuent le déficit et la dette que temporairement, en raison essentiellement de la générosité du premier pilier : la suppression du deuxième pilier se traduit en effet, plutôt que par des taux de remplacement faibles du second pilier qui disparaît, par des taux de replacement futurs, du premier pilier, plus élevés. Finalement, la dette ne s’accroîtrait que faiblement en Estonie, même si ce résultat est sensible aux hypothèses sur le taux d’intérêt effectif sur la dette publique.

Suggested Citation

  • Balázs Égert, 2012. "The Impact of Changes in Second Pension Pillars on Public Finances in Central and Eastern Europe," OECD Economics Department Working Papers 942, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:942-en

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Monika Queisser & Edward R. Whitehouse, 2006. "Neutral or Fair?: Actuarial Concepts and Pension-System Design," OECD Social, Employment and Migration Working Papers 40, OECD Publishing.
    2. Andras Simonovits, 2011. "The Mandatory Private Pension Pillar in Hungary: An Obituary," IEHAS Discussion Papers 1112, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Janusz Jablonowski & Christoph Müller, 2013. "3 sides of 1 coin – Long-term Fiscal Stability, Adequacy and Intergenerational Redistribution of the reformed Old-age Pension System in Poland," NBP Working Papers 145, Narodowy Bank Polski, Economic Research Department.

    More about this item


    affaiblissement du second pilier; Central and Eastern Europe; defined benefit; defined contribution; Europe centrale et orientale; finances publiques; pension reversal; pension system; public finances; régime de retraite à cotisations définies; régime de retraite à prestations définies; système de retraite;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:942-en. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.