Czech pension reform to raise low pensions

Illustrative photo: Filip Jandourek

The change in the composition of pensions, drafted by Prime Minister Andrej Babiš's government in resignation, will raise existing low pensions, but slow down increases in roughly one-half of all pensions, Labour and Social Affairs Minister Jaroslava Němcová has said.

Illustrative photo: Filip Jandourek
At the end of last September, the old-age pension was paid to roughly 2.4 million elderly in the 10.5 million Czech Republic.

One-half of old-age pensioners were paid less than 11,344 crowns per month. The ministry drafted an amendment changing the composition of the pension. The fixed sum, which is the same for recipients, will correspond to 10 percent of the average salary as of next year, instead of the current nine percent. This will have an impact on indexation. The model will be the same, but the sum will be distributed differently, as a larger amount will be sent to the fixed sum.

Experts argue that the Czech system sees pensions of the rich and poor differ only very little. According to the pension yearbook, only one-tenth of old-age pensioners had their monthly pension over 14,501 crowns two years ago. One-half of them had more than 11,344 crowns and one-tenth had less than 8,576 crowns. At that time, the average old-age pension was 11,460 crowns and it rose to 11,828 crowns by last September.

Pensions are regularly increased in January, specifically by the inflation rate and one-half of the growth in real wages.

The sum is then divided into the fixed part and the percentage part that reflects the years worked and the sum of the compulsory payments. Němcová said the fixed number could increase by 320 crowns. In January 2019, it may increase to 3,020 crowns.

This year, the pensions were increased on average by 475 crowns. In all, there was a 4 percent indexation rate.