ESPN Thematic Report: Contribution to the 2021 Pension Adequacy Report [Czech Republic] (European Social Policy Network)

Authors

JAHODA Robert

Year of publication 2020
Citation
Description The Czech pension system has a significant redistributive function and is effective at protecting the elderly population against poverty and social exclusion; however, this ability has decreased over the last 5 years due to a drop in pensioners’ relative income as a result of strong economic growth. One can expect a decrease in relative old-age poverty after 2020 because of a slowing down of the economy (with a further weakening of the economy due to the coronavirus pandemics). Simulations by the Ministry of Labour and Social Affairs indicate that pension expenditures will rise by 4.5-6.0 p.p. of GDP by 2050, with a relatively stable revenue from social security over time. Despite this increase in expenditure, the AROP rate of old-age pensioners (65+) will worsen by 5-9 p.p. Recent economic growth has increased the revenue of the pension system, making the need for reforming its long-term financial sustainability less obvious in short term. So reforms aiming to improve fiscal sustainability will need to be all the more urgent and far-reaching in the near future. The government should reflect on how to improve the supplementary personal pension scheme since it may play an important role in the provision of the income-related component of the old-age security system and may absorb part of the costs related to early retirement normally borne by the statutory pension scheme. A possible way forward would be to better involve employers in diversifying the income of future retirees.

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