Czech Pension System Collapsing: Budget Gap Widens

Czech Pension System Collapsing: Budget Gap Widens

Prague – While the total social insurance revenue collected by the state is shrinking, the number of pensioners is growing on an unprecedented rate. In no more than three months, these factors have created a gap of 10.4 billion CZK (roughly 400 million EUR) in the social security budget.

If this trend continues, the gap will grow to 40 billion (1.6 billion EUR), which would equal one percent of the country’s economic output. 

Although there will be no immediate problems caused by this and Czech pensioners will continue to receive their benefits, it is apparent now that one „bad” year is enough to show that the pension system introduced in the 1990s is not working properly anymore.

„We believed there was still enough time, that we were able to fix it. But the problem is already here,” says Lubomír Lízal from CERGE-EI, a think-tank.

Labor law loopholes

Finance Minister Eduard Janota was surprised upon learning about the decrease of revenue from social insurance payments, as he expected the revenues to grow by 6 percent (20 billion CZK) in comparison with the previous year. He had a good reason for it: last year, entrepreneurs that managed to preserve low-paid jobs were excused from paying 15 billion CZK in social insurance.

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This temporary exemption was available only until February 2010, however the revenue from social insurance payments continued to decrease. In comparison with one year ago, the revenue is smaller by 6 percent.

Although the number of unemployed has already stopped to grow, Czech employers prefer to hire staff under temporary work contracts or as self-employed workers, which means they do not have to pay social insurance at all (work contracts) or only a half of it (self-employment). 

Safe haven of retirement

Other reason could be that the economic depression makes people retire early. Last year, 115,861 new pensioners and 40,000 early retirements were registered – both figures are new all-time records. For example, in 2006, there was only 20 thousand early retirements. At the beginning of this year, another wave of early retirements might have occurred.

Last year, the total number of pensioners surpassed 1.5 million people. Ten years ago, it was only 1.2 million people. This is because the generation of “baby boomers” born during or shortly after World War II is reaching the age of retirement. However, the peak was already two years ago.

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The number of disability pensioners is growing at the same rate as in the last five years, and the total number of disability pensioners is steadily over 500,000.

 

 

Read more: No pain, no gain. Russians to lose Czech pensions

Read more: EU calculation: Czech 2009 budget gap at 270 bln CZK


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