A team of experts has recently published its economic analysis of all five political parties' proposals for reforming the state-financed pension scheme. The team was led by Vladimir Bezdek, a former adviser to the governor of the Czech National Bank.
All five parties' proposals will form the basis of negotiations on the future of the pension system. The impacts on state budget are stated for the period after the reform has taken place and when the new pension system is working.
Social democrats (ČSSD)
- A system of individual virtual accounts where the money paid by each individual is monitored and his/her pension is calculated in relation to the returned amount.
- The amount jointly contributed by employer and employee would rise from 28% to 29.6% of his/her gross wage.
- The system automatically responds to demographic changes and delivers a higher pension than currently to people on higher wages, and a lower pension to people on lower wages.
- The state would guarantee a minimum level pension for everyone with pension below a certain level.
- 13% of all contributions would be used to create a reserve fund
- There will be a guaranteed minimum pension based on 1.2 times the lifetime minimum contribution. It is estimated that one third of pensioners will be below this level. If the minimum is increased in line with wage inflation, half of all pensioners would have to have their pension paid up to the guaranteed level. The cost to the state would be enormous and unlikely to be covered by the reserve fund.
- The retirement age would gradually rise to 65, with freedom to retire earlier.
- This system is estimated to create a budget surplus of up to 2% of GDP annually
Christian democrats (KDU-ČSL)
- A system using concurrent financing (i.e. current pension payments are made from current pension contributions)
- Those under 50 when the reform is launched can choose whether or not to transfer a part of their existing pension contributions into the pension fund.
- Those not working at the start of the reform would pay 8% of their income into the fund
- Those in work would pay the 8% contribution along with another 2% of their remaining income into the fund.
- Women without children and men would retire at 65,
- Women with children would retire earlier and would also pay lower contributions.
- This system is estimated to create a budget deficit of around 1% of GDP annually
Liberals (US-DEU)
- Similar to the KDU-ČSL proposal
- Anyone can opt to transfer 3% of their existing pension contribution into a fund, provided they also contribute a further 6% of their remaining income.
- The retirement age will gradually rise to 67 as will sanctions for early retirement.
- This system is estimated to create a budget surplus of up to 1.2% of GDP annually
Conservatives (ODS)
- Everyone would receive a pension equivalent to 20% of the average wage.
- Everyone would contribute 20.5 % of their annual income to the pension fund.
- Every individual can choose whether or not to put aside any of the saved amount.
- The retirement age would rise to 65 in 2030 and to 71 in 2100.
- There are compulsory and optional alternatives: under the optional proposal, anyone aged above 40 can choose whether to carry on making a 28% contribution and receive the old pension or to switch to a 20.5% contribution and receive the new pension. Under the compulsory proposal, everyone born from 1975 onwards would get the equal pension, those born between 1961 and 1974 would get a hybrid of the old and new pensions and those born in 1960 and earlier would receive the old pension only.
- This system is estimated to create a (more or less) balanced budget
Communists KSČM
- This is based on the current system
- The overall pension contribution would rise from 28% to 29.6% by switching the 1.6% contribution currently made to the state employment policy.
- The retirement age would gradually rise to 65.
- This system is estimated to create a budget deficit of around 2.5% of GDP annually
For more information, please contact Michal Smrek at michal.smrek@cms-cmck.com or on + 420 221 098 850 or Martina Koucka at martina.koucka@cms-cmck.com or on + 420 221 098 876.
