Journal of Security and Sustainability Issues

Pension systems are a standard part of the macroeconomic and microeconomic environment of developed countries. Pension schemes, particularly developed after World War II and based on continuous funding system are currently getting influenced by the negative changes such as demographic fluctuations, changes in economic growth and high unemployment. These changes put the high burden on economically active population and that increases pressure on the necessary reform. Slovak Republic in order to ensure stabilization of the pension system, taking into account the adequacy of pension benefits, had decided to reform the pension system, which means that was applied combined method of financing of the pensions. This change turned into high transition costs which are significantly destabilizing the pension system and in the short term these costs are deepening the deficit of public finances and also the whole financial sustainability of the pension system. The reform of the pension system required not only the introduction of the funded method of financing of pensions, but also caused changes in the interim financing arrangements. The most important parametric changes made in the Slovak Republic are: linking retirement age to life expectancy, changing of the mechanism of valorisation of pension benefits and changes in the funded pension schemes mainly driven by the global financial crisis. Adopted parametric changes will significantly improve and strengthen the long term sustainability of the pension system and public finances.