Czech organisations representing employers and businesses have called on the government to make greater use of pension savings to finance the country’s economic development, arguing that the planned third pillar reform may not go far enough to unlock domestic private investment.

In a joint letter to the Prime Minister, the Minister of Finance, and Minister of Industry and Trade, the Czech Confederation of Industry and Transport, the Economic Chamber of the Czech Republic and the Confederation of Employers’, and Entrepreneurs’ Associations of the Czech Republic proposed increasing the share of alternative funds, extending life-cycle investment strategies to existing pension savers, and introducing automatic enrolment with an opt-out option.

The letter, signed by the organisations’ presidents Jan Rafaj, Zdeněk Zajíček and Jiří Horecký, welcomed efforts to make the third pension pillar more attractive and encourage greater participation.

However, they raised concerns about whether the proposed changes would deliver on the government’s ambitions for pension funds to help finance the Czech economy.

The organisations said employers, particularly large ones, have long encouraged employees to join pension schemes and save regularly.

However, they argued that the third pillar has stagnated over the past decade, partly because the pension system lacks a long-term, predictable vision.

“As representatives of the business community, we have been advocating for several years now that the strategic projects which the Czech Republic needs for its modernisation and future competitiveness should, to a greater extent, also be financed from private sources,” the letter stated.

“Citizens’ long-term savings, including funds held in pension funds, represent a significant opportunity in this regard.”

The letter pointed to other European countries, where pension funds invest in domestic infrastructure and other strategic projects over the long term. They said that such investments can generate long-term appreciation, while contributing to the country’s development.

However, they questioned whether the reform proposals presented at a Ministry of Finance seminar on legislative changes to pension savings would create sufficient scope for this type of investment.

One proposal was that the scope for investment by pension fund managers, who currently manage assets exceeding CZK 700bn, in investments related to the transformation of the Czech economy should amount to only approximately CZK 30bn.

The organisations also highlighted concerns raised during the discussion, including by former Central Bank of the Czech Republic governor and macroeconomist, Miroslav Singer, that the reform in its current form might not significantly increase participation in the system and that the number of new participants could remain below 150,000.

The letter described this as a “significant discrepancy between the ambitions attributed to pension funds by the Economic Strategy and the parameters on which the proposed reform is based”.

“On the one hand, there is the investment requirement of the economy in the order of CZK 3trn and the declared aim of mobilising domestic private capital,” it stated.

“On the other hand, the proposed amendment may only open up scope for pension funds to make this type of investment in the order of 10s of billions of crowns.”

The organisations called on the government to clarify whether this gap was intentional or whether the reform’s parameters would be adjusted during the legislative process to better reflect the objectives of the Economic Strategy.

They also offered to cooperate on developing the proposals, setting out three measures for further discussion.

These included increasing the share of so-called alternative funds, transferring existing participants and their savings to a life-cycle strategy, and introducing automatic enrolment in the third pillar for employees while retaining the right to opt out.

On life-cycle strategies, the organisations argued that the current proposals focus primarily on new participants and future contributions, leaving the potential of existing members and the capital already held in the system not fully utilised.

Therefore, the organisations proposed following Slovakia’s example by automatically transferring existing participants to a life-cycle strategy while allowing them to opt out.

According to the letter, this would extend the use of such strategies and help direct pension savings towards investment in the Czech economy through alternative funds.

“This is a complex issue, which is why we are working on our proposals in collaboration with macroeconomists, lawyers and various experts,” the letter concluded.

“Among others, [Singer] has expressed a willingness to play an active role in preparing the changes, and we are currently consulting with him on this matter.

“In our view, our common goal should not be merely a partial amendment to the third pillar, but the creation of a long-term, functional system which will enable people to secure their future and allow for greater domestic savings to finance the future prosperity of the Czech Republic.”

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