Czechia struggling with pensions reform
The Czech government is about to raise the retirement age to 67 despite the opposition parties' obstruction tactics in the lower house. The vote is expected before the end of the month.
Czechs, like other European nations, live longer and are getting older. In 2010 there were about 1.6 million people in Czechia over 65. By the end of 2023 this number rose to 2 million 240 thousand. This means that the number of people who are not working and getting state pension is about 640 thousand higher than it was less than 14 years ago. Tomáš Machanec is the director of the Department of Social Security at the Ministry of Labor and Social Affairs:
“I have an aunt who will turn 96 in August. She retired at 53, so she has been retired for 43 years, which is longer than the time she actually worked. Of course, I wish her well. However, this puts pressure on public finances. And the answer to this is, essentially, raising the retirement age.”
And this has already happened in the past three decades. Nevertheless, the pensions system gets ever deeper into deficit because there are simply not enough people working to support the growing army of pensioners. Tomáš Machanec explains why raising the retirement age to 67 is an overdue necessity.
“My mother retired at 55, and my wife will retire at 65. So that’s a difference of thirty years in their birth cohorts, and it’s a dramatic difference. For men, the retirement age was 60—my father retired at 60, and I will retire at 65. This absorbs a large part of the demographic pressure, though it certainly doesn’t make those who have to work much longer than their parents happy. On the other hand, the ergonomics of work, as well as the replacement of manual labor by mechanization and robotics, are also changing significantly, so the ability to remain economically active is improving. However, we undoubtedly need to think about how to extend economic activity beyond the retirement age—when someone retires but continues working part-time, for example. It’s up to us to find ways to keep seniors at least partially in the labor market, so they can have better incomes, while also helping the state finance the oldest citizens, who objectively can’t have an income anymore.”
Danuše Nerudová is a prominent economist and now a member of the European Parliament for the Mayors and Independents Party. She headed the Commission for just retirement and also says that government should do more to give people incentives to stay active longer:
“We are in a country where the percentage of working retirees is very low because the state does not treat those retirees who can and want to work very well, and it does not provide incentives, such as reduced tax rates, and so on. Therefore, I believe that support for this could also include tax relief, for example, on income taxes for working retirees.”
While each country has its peculiarities, Danuše Nerudová thinks that when it comes to pension reform, the Czech government should have a better look at the best practices elsewhere in Europe:
“I believe that the Czech Republic has its own specifics, and so does our population. We also have a certain history, including a totalitarian past, which, for example, has shifted our perception of ownership compared to the West. From my perspective, I think that we can cherry-pick certain elements from different systems and apply them in the Czech Republic. One of these is, for example, the state minimum pension and the merit-based pillar. There are countries that allow for different retirement ages in each pillar. A great example of how a state informs its citizens about their pension entitlements is Austria, where every year an Austrian citizen receives an envelope from the state with information about their current pension entitlement. They know the coefficient that is sent and are aware of the pension they will receive upon retirement. These are all things we tried to pick from various pension systems and incorporate into the proposal for pension reform in the Czech Republic.”
So, even though the focus is now on the very contentious political debate about the maximum retirement age, there are other measures that can be implemented. Tomáš Machanec from the Ministry of Labor and Social Affairs is optimistic:
“The role of the state is to create incentives for employers to get even more involved than they currently are. Today, it’s about a quarter, but we aim for at least half. Similarly, people need to be engaged and realize that it’s ultimately beneficial for them. Another advantage we have is that the world today is incredibly open. The younger generation today is much more aware of how societies operate in other countries. They will be more willing and naturally inclined to adopt practices that work well abroad. We need to support and strengthen this process. I think that’s a big advantage.”
