Demographic changes and challenges>

Last update: 01 06 2010

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Ageing Visegrad

Like most developed countries also Slovakia, Czech Republic, Poland and Hungary will very soon face the situation, where fewer people will have to create the resources, which will have to change the structure of public finances.

Background

Most of the developed countries experience a rapid increase in the ratio of dependent persons to the economically active population. The ageing of the population means that the decrease in proportion of children in the population is accompanied by the higher proportion of the elderly.

These changes are determined by number of factors, among them the changes in the lifestyle and social changes after 1989. These changes brought the transformation of reproductive and family behavior (fewer marriages in higher age. etc…).

In Visegrad countries we have witnessed quite radical alternations in this behavior during the years 1990-1995; they became less evident later on.

Experts agree that the possibilities to tackle ageing of the population are extremely limited. However the age structure of the population can be influenced by the long-term population policy along with migration policy, family (increase the prestige of marriage and having children) and social policy.

The trend of population getting older and older is irreversible and will have impact on every aspect of the life of the societies.

These changes will have profound impact on the how the economic wealth of the country is created and distributed. For example, a fall in the need for youth education services is to be expected. At the same time the society will need more resources to cover medical care and social services, namely pensions for retired.

According to Eurostat predictions, in 2050, the population of Europe will drop from 376 million to 364 million. The number of children will also drop (by 11 million) as will those of productive age (by 20 percent) while the number of pensioners will double and those over 80 will triple.

It is also understood that migration can hardly significantly influence the age structure; however it can change the size of the population. The beneficial effects of the migration can only be achieved, if it is accompanied with integration.

Czech Republic

Unlike some countries such as Slovakia, Romania or Bulgaria, Czech Republic has not yet adopted any pension reform as the consensus among politicians is missing and no party has been willing to take a resolute action without a cross-party agreement on the shape of the future reform. While center-right political parties are generally more pro-reform – willing to adopt some form of multipillar scheme, center-left and far-left parties are opposing any greater role for private pension funds.

Czech pension system is a classical pay-as-you-go system with additional voluntary pillar where people can, if they wish, to put their money in several private pension funds (usually owned by banks). By saving their money in pension fund, they are entitled to a supplement state payment that is matched with their own contribution. But generally, additional insurance tend to play only minor role in pensioner's receipts.

Currently, one-quarter of the 10 million population of Czech Republic draw a pension and 28 % of the state expenses go to the national pension scheme. In a two decades time, more than 40% of the Czech population is expected to be over 65 years old. Some estimates say, that with zero scenario (i.e. when no reform is adopted), each Czechs will pay for one retiree by 2050 (according to Czech Statistical Office, number was 2, 17 in March 2010).

Due to such a development, the current pension system in Czech Republic is regarded by economists as unsustainable and the need for reform has become one of the hottest political issues. As from 2010, the first step towards the pension reform has been implemented – the retirement age for the people born after 1968 was increased to 65.

In recent years, the Czech Republic has introduced a range of new measures related to social security, but has never reached a political consensus on pension reform. Since the country entered the EU, the Czech Republic has adopted many laws concerning individuals’ responsibilities. A new social security law and a material shortage law were adopted, as well as some sectional measures on retirement insurance and an employment policy.

Because of the impending problems, the politicians promote the additional pension insurance and savings for retirement. Some of the proposals also contain reforming measures like extending the period for mandatory insurance payments and concurrency of the employment and drawing a pension.

What could moderate the described negative trend, is the anticipated growth of the fertility rate which now stands at 1,17 children per woman and in the 2050 can raise to 1,62. Also, the immigration is expected to influence partly the population shrinking.

Poland

The size of the population in Poland in the year 2004 was 38 173 800, which makes it the 8th most populous country in Europe. It was the sixth year in a row in which a decrease of the population was noted. In comparison to Western European countries, Polish society is still young, nevertheless demographic trends similar to the Western Europe can be identified. In 2005 the population growth was -0,03%.

In February 2006 the allowance for parent of new-born baby of 243,5 euro (called “becikowe”)  was introduced by the controversial PiS-Samoobrona-LPR government. The number of new-born babies in Poland is growing since 2005. In 2009 425 000 children were born – 11000 more than in the year 2008. (Source: GUS)

This growth is apparently not the effect of 250 euro, but, as researchers say, an “echo” of the last year of the baby boom in Poland, which was 1983. Women born in the years 1978-85 are now in the time of most intensive fertility. These data does not mean a change in the  population decline in Poland, which is not that strong as in Western Europe.

It is estimated that after 2010 the decreasing of the number of people of productive age will continue. In 2020 it should be 25, 1 million people; this number will drop to 22, 9 million in 2030. The ratio of persons in retirement age to persons in productive age in 2030 is expected to be 37% - currently it’s 19%. This is of course rather pessimistic tendency. The life expectancy in Poland is – 75, 19, while in Great Britain it is 78,7, in Greece 79,38 and Sweden 80,63.

A characteristic feature of Polish labour market is the high employment level in the agricultural sector – in EU in agriculture works 4, 5% of the population, in UK 1, 6%, in Greece 17%, in Poland 19%.

It’s hard to say how many immigrants live in Poland, but if you compare this country to Western Europe or Central European countries like Czech Republic or Hungary it’s obvious that Poland is very homogeneous, mostly society of Polish origin. A research project “Immigrants in Poland” from the year 2008 with 10242 participants, has shown that 26,6% immigrants were from the Ukraine, 9,2% from Belarus, the rest from other countries. Most of them – 30% lived in Mazovia – the region with the Polish capital city Warsaw.

Although some demographic facts are available, it’s difficult to demonstrate special policies focused to increase the birthrate and measures regarding immigrants in Poland. The right wing government introduced “becikowe”, but the Polish society still struggles with political arguments such as the question of in vitro – should the state refund this treatment or not (the Catholic church in Poland is strictly against), the number of abortions is unknown as they are illegal and the exact number of immigrants is also unknown. The biggest minority in Warsaw are Vietnamese, but nobody knows how many of them live in Poland (some researchers say it’s 20 000, authorities suppose it could be 40000).

Slovakia

The population of Slovakia is 5, 4 million inhabitants. The demographic trends do not much differ from the overall European trend. According to the estimates 16, 7 % of the Slovak population is younger than 14 years, 71, 3 % is between 15-64 years old (productive age) and around 12 % of the population is older than 65 years (retirement age). That makes Slovakia one of the “youngest” countries in the EU. Statistical average says that there is 1, 32 children born per one woman in Slovakia.

Unsurprisingly, it is expected that the population of Slovakia will drop in size in the future. The most pessimistic scenarios say that the population of Slovakia will drop by 300 000 people over the next 25 years. Even a slight rise in the birth rate, rise in the number of immigrants and the growth in life expectancy will not reverse this expected trend.

As a result the population will grow older. In 2050 the average age in Slovakia will be as high as 48 (42 in 2020).

To address the negative demographic trend and the ageing population – and to boost the sustainability of the social system - the second government of Prime Minister M. Dzurinda (2003-2004) added a second, private pillar to the social insurance system. This individual saving scheme, which complements the pay-as-you-go system, was meant to be compulsory for the younger population. One of the arguments for the introduction was that this system reflects better the merits and the level of earnings of individual saver.

The current government (Fico, 2006-2010) strongly opposed the system and said it would put savers' money at risk. It ceased to make participation obligatory and has been trying to persuade savers using individual accounts to return fully to the state system. The ministry of social affairs also claimed that hastily introduced reform has created an insurmountable gap between the incomes and the expenses of the state social security system in the short and medium term. Some experts claim, that the pay-as -ou go system should have been better stabilized financially.

Private companies running the individual saving funds claim that the government interventions destabilized the system. Moreover, there are doubts how the private funds will emerge from the global financial and economic turmoil on the markets. The much needed political consensus on the pension system that would tackle demographic challenges is still missing.

Generally the political parties do not want to return fully to the pay-as-you-go system. The discussion is going on the portion of the social insurance that is channeled to the individual accounts (today it is ½ half – 9 % of the brutto incomes, the other 9 % go to the state social insurance company). Centre right parties suggest the stability of the pension system should be guaranteed by the constitutional law.