Illustration photo – Prime Minister Petr Fiala at a meeting of the Chamber of Deputies, January 12, 2023, Prague.
Prague – The government is counting on a systemic solution and adjustment of the general pension valorization mechanism, including early retirements. Prime Minister Petr Fiala (ODS) said this today in the Otázky Václav Moravec program on Czech television. According to him, the controversial government amendment on lower pension growth in June, which was discussed by the House of Representatives from Tuesday to Saturday due to opposition obstructions, must be accepted due to the unpredictable increase in inflation.
“We have a system solution ready, we will adjust the general valorization mechanism including early retirements. This is a necessary thing,” said Fiala. According to the Prime Minister, those who created the valorization mechanism could only imagine a maximum of five percent inflation. Deputy Prime Minister and Minister of Labor and Social Affairs Marian Jurečka (KDU-ČSL) said at the beginning of February that he would like to present the proposal for the new setup within a few weeks. He mentioned a return to earlier milder increases.
Like Jurečka, Fiala also said that the government expected an extraordinary valorization of pensions this year, but with effects on the budget for this year of up to 20 billion crowns. That they should be much higher, over 35 billion crowns, according to him, was caused by the jump in inflation between December and January.
Thanks to the one-time reduction of the June valuation, the state will save approximately 20 billion crowns this year. Jurečka estimated the reduction of expenses in the next ten years at 316.4 billion crowns. “We now have to react to the extraordinary valorization in an amount that no one expected, so that it does not increase our base forever into the future. Now it would be 35 billion, next year 58 billion. That is not possible,” noted Fiala.
Due to inflation, pensions are to be exceptionally valued from June. According to the documents for the proposal, according to the current rules, the merit percentage part of the pension would increase by 11.5 percent, the average old-age pension would increase by 1,770 crowns. The government proposed to limit the one-time addition and increase the merit component by 2.3 percent and by 400 crowns, the average retirement pension would increase by 760 crowns. Indebtedness would be reduced by 19 billion crowns. Instead of 34.4 billion in additional debt, 15.4 billion CZK would be paid. The House of Representatives approved the proposal on Saturday, it will now be submitted to the Senate for consideration and then to the President for consideration.
Sociologist and member of the National Economic Council of the Government (NERV) Daniel Prokop said in ČT today that the change in valuations is unfair to people who will retire this year or next year, because their pensions will be lower. The system should be set up so that mainly low pensions grow in times of high inflation, he said.
Economist and NERV member Helena Horská stated that the pension valuation system was not prepared for large fluctuations in prices or real wages in the long term. . The pension system is not sustainable in the long term in its current state. She stated that the government should make changes not only in the pension system, but also in taxes, for example.
Pensions consist of two parts. The solidary fixed acreage is the same for everyone, and the merit percentage reflects the time worked, contributions from earnings and the number of children raised. Pensions are valued every time from January by the increase in prices and from 2018 by half of the increase in real wages, until then it was a third of the increase. The added amount is distributed between the merit and solidarity part, which must correspond to ten percent of the average wage. Exceptionally, pensions are increased if prices have increased by at least five percent since the last increase. The merit portion of the pension will be adjusted by as much as the price went up. People with a higher pension will thus improve more.