Wednesday, 29 July 2020

Czech cabinet's programme includes pensions reform

22 December 2017

Prague, Dec 21 (CTK) - The new Czech cabinet included a pension system reform in its policy statement, which would separate the pensions account from the state budget and create a solidarity base of equal pensions and a pension component adequate as regards individuals' social security payment levels.

According to the policy statement, a public pension insurance company would be formed out of the current Czech Social Security Administration, which would receive funds from mandatory social security payments and pay out the pensions at the same time.

The reform is based on proposals of professor Jaroslav Vostatek from private University of Finance and Administration. He was member of the pension commission of the previous cabinet of PM Bohuslav Sobotka (Social Democrats, CSSD).

The draft was criticised by rightist parties as one that would lead to lower pensions and money spent on them. The separation of the pension account from the budget is also challenged by the CSSD and the trade unions, however.

The new PM Andrej Babis's ANO minority cabinet has not gained support of other parliamentary parties yet for itself in the Chamber of Deputies, which is to hold a confidence vote on it on January 10.

In its policy statement, it says the pension reform is to be elaborated by a team of experts and that it should preserve the current standard of pensions.

While the reformed system should harness the current system's advantages, such as stability, low costs and public administration guarantees, it should bring about a standard of flat-rate retirement income security based on the solidarity principle and strengthen the pensions' adequacy at the same time.

Flat-rate income security should be provided for by an equal pension component and adequacy should be achieved by a pension component corresponding to the payments an individual makes to the public insurance company.

In the previous pension commission, Vostatek also proposed a significant increase in the fixed pensions' amount, which would be the same for everyone and currently corresponded to 9 percent of the average salary. From this year's 2,550 crowns a month, he would raise it to 7,770 crowns.

On the other hand, he suggested that the percentage share based on the number of years at work and on the level of earnings and taxes be lowered from 1.5 percent of one's income for each year of paying social security to 0.4 percent.

Vostatek said the new pensions would not be lower, but that the very low pensions would be higher than at present.

While employees' social security payments could drop by 11 percentage points from 28 percent, the decrease would be compensated for by an increased income tax, which would fund the equal pension component.

Expenses on pensions have been higher than the income of the social security system for long. The system is thus facing a deficit of some 50 billion crowns per year.

Martin Potucek, the pension commission's head during the previous cabinet, believes the current system of pensions, which are part of the state budget and are contributed to from it, ensures it never actually has to face a deficit and that people always receive pensions. He admitted though that the system was a merge between insurance and social security.

CSSD's economic expert Michal Picl maintains that preserving the stability of the system, while, at the same time, separating it from the state budget, as Vostatek suggests, is not possible. Especially in a situation when the cabinet is considering decreasing payments on social security.

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