Next week, the government could discuss a proposal for a permanent change in the valuation of pensions

Next week, the government could discuss a proposal for a permanent change in the valuation of pensions

The government could decide to discuss the the litter lastedé pension valorization changes´

Illustration photo – Minister of Labor and Social Affairs Marian Jurečka (KDU-ČSL) at a press conference after the government meeting in Prague on December 14, 2022.

Prague – Government could next week discuss the draft amendment with a permanent change in the valuation of pensions. According to the plan, the adjustments should apply from July next year. Eva Davidová, spokeswoman for the Ministry of Labor, told ČTK. The Cabinet proposes to slow down pension growth due to indebtedness. The National Budget Council (NRR) and the National Economic Council of the Government (NERV) also recommend this as a step towards the necessary recovery of public finances. According to the department's plans, higher pensions should grow less and low ones should grow more. Some experts criticize the possible weakening of merit.

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The government does not yet have the proposed amendment on the agenda for its Wednesday session, nor has it yet been published on its website in the upcoming legislation with the Ministry of Labour. “The draft amendment is ready. It aims to permanently treat the valorization mechanism with regard to budgetary impacts and prevent the gap between people with low and high pensions,” said Davidová. According to her, the coalition politicians have already agreed on the changes. The spokesperson did not elaborate on the individual variants.

Pensions are now valued every January by the increase in prices and half of the increase in real wages. They then increase exceptionally if the increase in prices for the monitored period exceeds five percent. So far, the government has pushed for a one-time reduction in the extraordinary valorization in June. All pensions will be increased by the same amount and only part of the increase will be based on merit. It is more advantageous for low pensions. Higher pensions will increase significantly less than under the current rules.

Czech Television reported that, according to the internal document of the Ministry of Labour, pensioners could either receive a contribution of 5,000 crowns, or only half of the price increase would be taken into account, or extraordinary pensions would not be increased and the price increase would be additionally taken into account during the normal increase in pensions in January. “It will be a mix of models,” the spokeswoman said. She pointed out that the change will follow the reduced June extraordinary valuation. Part of the addition could now be in a lump sum and less than before, it would be increased as a percentage. Money would thus be redistributed more in favor of lower pensions. This could apply to extraordinary as well as regular valorization.

NERV recommended to slow down the increase in pensions due to indebtedness and increase it again in January by a third of the increase in real wages instead of half. Labor Minister Marian Jurečka (KDU-ČSL) recently told ČTK that this step would be appropriate.

The pension consists of two parts. The solidarity part is the same for everyone, the years of service, contributions and the number of children are reflected in the merit amount. The solidarity part increases in January so that it corresponds to ten percent of the average salary. This year it amounts to 4040 crowns. The rest of the added amount goes to the merit part, which is increased by a set percentage. In case of extraordinary valorization, only the merit portion is raised. The amendment could partially adjust these parameters, the pension reform is supposed to bring about bigger changes.

According to experts, the Czech pension system is one of the most solidary and pensions are levelized. Some experts reject the weakening of merit and further redistribution. According to them, on the contrary, merit should be strengthened so that people have the motivation to contribute to the pension system. The Organization for Economic Cooperation and Development (OECD) also pointed out the low level of merit.

In 2017, according to the Ministry of Finance, approximately 420 billion crowns were paid out for pensions, 526 billion crowns the year before and 595 billion crowns last year. This year, the amount could be around 700 billion crowns. Expenses exceed premium income. This year's approved budget foresees a deficit of 62.5 billion crowns, without money for extraordinary valorization.