When high earnings mean low pensions

The Czech state pension system is among the most generous in the European Union, and indeed the developed world -- at least for those retirees who were below-average earners during their working years. But according to a recent analysis of state pension systems, only in the United Kingdom do high-wage earners get back less in their golden years than do their Czech counterparts.

The Constitutional Court of the Czech Republic this year refused to address a case by one of its former judges, who is attempting to sue the state for giving him an unfairly low pension. The retired judge, Pavel Varvarovsky, has since filed a complaint with the European Court of Justice on the grounds that he was denied a fair hearing at home. Judge Vavarovsky calculated that he and his employer paid a combined monthly social security tax of 1100 US dollars, yet his pension is only 415 US dollars per month.

The case of the retired judge is hardly unique. Any professional who earned more than twice the average Czech wage will only get a state pension equal to 35.3 percent of his former income. Within the European Union, only the United Kingdom gives less back to former high-wage earners than does the Czech Republic. The average pension as a percentage of average wage comes to 58.2 percent; the average for the OECD (the EU member states plus developed countries like Japan and the United States) is some 70 percent.

A relatively low-income earner, on the other hand, such as a tram driver or factory worker, may expect a pension equivalent to 90 percent of his former take home pay - among the most generous rates in the EU.

The European Commission has repeatedly warned that with the population rapidly aging, the Czech pension system is unsustainable. But it remains an extremely sensitive issue and the major political parties in the Czech Republic have a gentlemen's agreement to put off serious debate on pension system reform until after the general elections in the late spring of 2006.

While proponents of the current pension system say that it is precisely because of its progressive nature that the Czech Republic has among the lowest percentages of pensioners living below the official poverty threshold, retired professionals like judge Varvarovsky are increasingly unwilling to make up the difference.