Social and economic aspects of the introduction of mandatory pension insurance based on individual capitalized saving

Pension insurance reform contributed to financial stabilisation and adjustment of the pension system with economic trends and unfavourable demographic trends. With the introduction of the tripartite pension system, the emphasis of the reform has considerably shifted to social, macroeconomic and financial effects of the pension system - the development of the capital market and a more efficient allocation of capital, increase of national saving and economic growth. The aim of the paper is to analyse social and economic effects of the pension reform, stressing the pensions realised through the compulsory pension insurance on the basis of intergenerational solidarity or the first pillar and the mandatory pension insurance based on individual capitalized saving or the second pillar, and the projection of future trends. If the laws that regulate the rights and obligations of insured persons do not change, it is estimated that the pensions from two pillars will be lower than the pensions realised in the one-part pension system in the long run as well. Therefore it is evident that the corrections of certain parameters on which the level of pensions and costs in the reformed pension system depend are needed. Possible measures to increase overall pensions of the persons insured through the second pillar include the increase of the contribution rate for the second pillar, increase of the basic pension that the persons insured through the second pillar realise in the first pillar, or a combination of these two measures. It is assessed that, in order to increase the pensions realised so far and the pensions that will be realised from both pillars in the next fifteen years, basic pensions should be increased at any rate. Increase of the contribution rate for the second pillar demands considerably higher costs in the next decades than the costs of the increase of basic pension, but in the long run this would enable the attainment of the overall higher pension, as well as the development of the capital market and the increase of national saving. Therefore the most expensive solution for the state is a certain combination of the increase of basic pension and the increase of the contribution rate for the second pillar, which would be the most effective measure. In that manner, social security of insured persons in the reformed pension system would be increased and the positive features of the pension reform would be maintained. However, the above solution requires great ex