Increasing pensions with the aim of increasing their real value
The increase
Minister of Labour Marian Jurečka announced at a press conference that from January all old-age, disability, and survivor pensions will increase by 360 crowns. Notably, all pensions will grow equally, as the solidarity part of the basic pension will increase, not the merit part. With this intervention, the average old-age pension is expected to reach 20,693 crowns in January, increasing public spending by 12.3 billion crowns. The Council of Ministers will approve the regulation on pension increases by the end of September.
“The increase will cover the burden of price growth, the real value of the pension will increase by 0.9 percent,” the minister said. Jurečka assured that even after the adoption of the pension amendment in addition, the price increase will always be taken into account.
“The vast majority of pensions amount to between 18,000 and 23,000 crowns,” the minister continued, noting that after the extraordinary increase in June to adjust for inflation, 78 percent of pensioners receive more than 18,000 crowns net per month. The minister also added that the average amount ‘almost coincides with the median’, i.e. about half of the beneficiaries receive a pension above the average. Finally, he said that pensions have not grown as fast as in the Czech Republic in recent years; ten years ago the average pension was half of what it is today, only from January 2022 to January 2024 the average pension increased by 5,240 crowns.
How the pension is calculated
In the Czech Republic, 2.36 million people receive an old-age pension from the social administration and another 479,000 receive disability and survivor pensions. Several tens of thousands of pensions are paid by the systems of the defense, justice, and interior departments. In 2023, at the end of the first quarter, the average pension amounted to 19,461 crowns, since June this year it has increased by about 760 crowns due to inflation to an average amount of 20,233 crowns.
The pension consists of a fixed solidarity part and a percentage merit part based on years of service, the amount of contributions from income, and the number of children. The additional amount is calculated so that the fixed part corresponds to ten percent of the average salary. This year it is 4040 crowns, in January 2024 it will be 4400 crowns.
How the calculation of inflation will change
The current alternative in calculating inflation will also be abolished, the changes in the valuation are intended to narrow the gap between high and low pensions. Until now, either the consumer price increase of pensioner households or the consumer price increase of all households was calculated, whereby the highest inflation was used for the calculation of the final valuation.
The new method will be based only on the increase in the cost of living of pensioners, instead of the extraordinary valuation the state will pay a temporary contribution, and at the same time the meritorious part of the pension will be increased, again only temporarily. The temporary contribution and the increase of the assessment percentage should correspond to 60 percent of the price increase for the period under review.
Minister Marian Jurečka pointed out that pensions will continue to grow, but more slowly than before: “It is true that we will increase pensions every year in January. At the same time, the elderly will remain protected against extreme inflation. We will fully value pensions for inflation, we are just changing the system to make it fairer and, above all, sustainable. Now we are really pulling the emergency brake’.
Sources: https://zpravy.aktualne.cz/, https://www.penize.cz/, https://ct24.ceskatelevize.cz/
Sources of images: https://zpravy.aktualne.cz/
Graphic source: https://storyset.com/
