Emerging European countries and Russia have had to postpone their plans to strengthen defined contribution arrangements due to the coronavirus pandemic.
Sources said that the long-awaited introduction of auto-enrollment programs in Russia and Ukraine could be delayed for two years despite ambitions to launch new DC plans in 2021 in both of these countries.
The coronavirus pandemic has also not spared other countries in the region in terms of affecting their opt-out rates, including two recent adopters of auto enrollment — Poland and Turkey.
"The governments are picking up the bill and they may do so explicitly or implicitly," Alexander Plekhanov, director for transition impact and global economics at the office of the chief economist at the European Bank for Reconstruction and Development in London, said in a telephone interview. "I think explicitly it happens because in many economies the pension systems remain unreformed or half reformed and merged with public pension systems, which is essentially pay as you go that is underpinned by public borrowing capacity."
Mr. Plekhanov added that emerging Europe countries have a tricky balance to strike. On the one hand, they are struggling with the issue of longevity and on the other, health is deteriorating faster in these regions than in other parts of Europe, so people will be limited to work even when they would usually retire, he said.
Michael Brough, senior director at Willis Towers Watson PLC in London, added in a separate interview that Poland and Turkey, which introduced new defined contribution systems in recent years, have struggled to attract plan participants and have seen high opt-out rates. Mr. Brough said the pandemic has put further pressure on the populations of these countries as people are losing jobs and struggling to afford the contribution requirements. "If people can't afford to contribute, and there is an opt-out route, then some will exit," he said.
In Poland, where a mandatory auto-enrollment DC system was introduced in 2019, recent figures have indicated that around 60% of enrolled participants opted out. In Turkey, which introduced its mandatory auto enrollment a few years earlier, has seen about 75% opting out, Mr. Brough said.
Countries in other parts of Eastern Europe are also grappling with changing their DC arrangements. For example, Bulgaria's government has only two months to get other political parties to approve its proposal for decumulation options so that DC plan participants will be able to take their retirement benefit in September, said Evelina Miltenova, chairwoman of the Bulgarian Association of Supplementary Pension Security Companies, based in Sofia.
The government proposed in late December three ways in which 17,000 DC retirees could receive their retirement benefits for the first time. The three options include long-life retirement benefits, a program of withdrawal payments and a cash option for participants with very small pots, Ms. Miltenova said.
And in Estonia, the government allowed withdrawals starting Jan. 1 from the mandatory second pillar DC system, which was established 20 years ago, said Matti Leppala, secretary general and CEO of Pensions Europe in Brussels. "It's a major issue and major change," he said. Estonians will be able to withdraw twice from DC plans in their lifetimes, he added.
