The Slovak Old Age Security System in 2020

By Viktor Križan, Trnava University

Until 1993, the Slovak old age security was part of the Czechoslovak Republic’s system. The Czechoslovak Republic relied on the Austrian and Hungarian laws on compulsory old age insurance, which targeted only selected occupational groups. After 1993, Slovakia became an independent state and began developing its own pension system. Alongside the traditional public pension, in 1996, the country introduced voluntary supplementary pension insurance. In contrast to the Czech Republic, where the coverage of such pension insurance was not limited, in Slovakia, this voluntary retirement savings scheme could only be accessed by employees and employers. In 2004, a structural reform followed and turned the Slovakian pension system into a multi-scheme system (also referred to as a three-pillar system) that introduced a fully funded scheme as part of the mandatory pension insurance alongside the mandatory public and voluntary private schemes. Later reforms affected the mandatory character of the fully funded scheme by turning it into an opting-in possibility for pension insurance where part of the mandatory contributions could be allocated. Nowadays, ‘standard protection’ in old age is achieved through an interconnected public-private mix of mandatory insurance in public schemes and an opting-in possibility in a private, fully funded scheme. Old age pensions can be ‘topped up’ with voluntary insurance in a private pension savings scheme. For some professional groups with hazardous jobs saving in this scheme is mandatory providing them with an old age pension supplement as part of their standard protection. ‘Minimum’ protection in old age is ensured by a minimum pension of the public scheme and through social assistance minimum income measures.

Standard Protection in Old Age

The statutory old age pension scheme  (starobné dôchodkové poistenie) is the biggest public pension scheme. The earnings-related and defined benefit scheme is financed on a pay-as-you-go (PAYG) basis and is administered by the Social Insurance Agency. The scheme mandatorily covers the majority of the economically active population engaged in gainful employment but also foresees some voluntary pension insurance options for those not mandatorily covered. Individuals who are insured in the statutory old age pension scheme and younger than 35 years of age can also opt into the fully funded private old age pension savings scheme  (dôchodkové starobné sporenie) and transfer part of their mandatory pension contributions to this scheme. Once individuals have decided to enrol in the scheme, they may no longer opt out. The defined contribution scheme is based on individual accounts and is administered by single-purpose private pension management companies.

The professional group of armed forces staff is exempted from insurance in the statutory old age pension scheme and is instead mandatorily insured in an occupation-specific scheme of its own, the so-called pension scheme for police officers and soldiers  (výsluhové zabezpečenie policajtov a vojakov). Retirement benefits provided by the scheme depend on the length of service and the amount of the salary police officers and professional soldiers have obtained in the established period before benefit entitlement.

Apart from being covered by the statutory old age pension scheme, those working under hazardous conditions are further mandatorily insured for a lifetime pension supplement in the fully funded private scheme, the so-called supplementary pension savings scheme  (doplnkové dôchodkové sporenie). The contributions for the scheme are mandatorily covered by the employer and employees may voluntarily provide further contributions themselves. The scheme covers occupations that, by decision of the responsible health authority, are classified into 3 or 4 labour categories (different degrees of hazardousness that concern the increased probability of occupational disease, poisoning or other work-related health damage). In addition, the scheme covers dance performers or music performers practising wind instruments. Supplementary benefits of this scheme can be regarded as part of standard protection for persons working under hazardous conditions as participation in the scheme is mandatory and as supplements compensate for lower public pension benefits due to the applicable early retirement conditions of this group.

Top-Ups

For the majority of the Slovakian workforce, supplementary pension benefits of the private and fully funded supplementary pension savings scheme  (doplnkové dôchodkové sporenie) serve as a ‘top-up’ to public pension benefits. Participation is voluntary and the scheme can be accessed by all citizens over the age of 18. In addition, employers can also voluntarily provide contribution payments for their employees. The individual accounts of the participants in the scheme are managed by private pension companies that invest the scheme’s funds in the financial markets to increase their value. Participation in the scheme is incentivised by some tax relief measures.

Minimum

The statutory old age pension scheme provides a ‘minimum pension’ (minimálny dôchodok) for individuals with insufficient contribution-based public pension benefits who have at least 30 years of minimum insurance periods. The purpose of the ‘minimum pension’ is to provide beneficiaries with a minimum level of pension income, in order for them not to become dependent on social assistance measures. Persons with an income (incl. pensions) below the minimum subsistence level can apply for assistance in material need  (pomoc v hmotnej núdzi). Assistance in material need is provided in the form of a financial ‘material need allowance’ (dávka v hmotnej núdzi) that guarantees a certain minimum income level, and in the form of specific allowances (príspevky ku dávke v hmotnej núdzi) targeting more concrete needs. The assistance in material need measures are strictly means-tested and do not specifically target senior citizens but address other population groups as well. If a recipient of a ‘minimum pension’ of the public scheme lives alone, then he or she will not be able to qualify for the ‘material need allowance’ as the amount of the ‘minimum pension’ is higher than the subsistence minimum level as defined by law. However, if the recipient of the ‘minimum pension’ is part of a household that includes individuals who qualify for assistance in material need, then the household can be eligible for the ‘material need allowance’.