Wednesday, 19 December 2018

Czech pension reform to raise low pensions

21 February 2018

Prague, Feb 20 (CTK) - The change in the composition of pensions, drafted by Prime Minister Andrej Babis's government in resignation, will rise low pensions, but slow down the increase in roughly one-half of all pensions, Labour and Social Affairs Minister Jaroslava Nemcova (ANO) told journalists on Tuesday.

At the end of last September, the old-age pension was paid to roughly 2.4 million elderly inthe 10.5 million Czech Republic.

One-half of old-age pensioners were paid less than 11,344 crowns.

The ministry drafted an amendment changing the composition of the pension. The fixed part, which is the same for all, is to correspond to 10 percent of the average salary as of next year, instead of the current 9 percent.

This will have an impact on the indexation. The model will be the same, but the sum will be distributed differently, as a bigger portion will be sent to the fixed part.

Experts argue that the Czech system is among those with the biggest solidarity, where the pensions of the rich and poor differ only very little.

According to the pensions yearbook, only one-tenth of old-age pensioners had their monthly pension over 14,501 crowns two years ago.

One-half of them had more than 11,344 crowns and one-tenth had less than 8576 crowns. At that time, the average old-age pension was 11,460 crowns and it rose to 11,828 crowns by last September.

Pensions are regularly increased in January, specifically by the inflation rate and one-half of the growth in real wages.

The sum is then divided into the fixed part and the percentage part that reflects the years worked and the sum of the compulsory payments.

Nemcova said the fixed part might increase by 320 crowns. In January 2019, it may increase to 3,020 crowns.

This year, the pensions were increased on average by 475 crowns. In all, there was a 4 percent indexation rate.

Babis mentioned the average pension of 12,240 crowns. The average increase by 918 crowns is to mean a 7.5 percent growth. If the annual inflation rate is 2.5 percent like now, one-half of the real growth in the salaries is to be 5 percent.

However, a total 10 percent growth in real earnings can be hardly expected.

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