Explained: Czechia’s pension controversy and what it means for expats

The government has approved a controversial change to pensions; here's how the changes could affect retirement pay for all.

William Nattrass

Written by William Nattrass Published on 13.03.2023 15:00:00 (updated on 13.03.2023) Reading time: 5 minutes

The Czech government is facing one of the biggest controversies of its term so far as it pushes through a pension reform which opponents call unconstitutional.

A bill passed by parliament in a state of legislative emergency and subsequently approved by the Senate earlier this month, despite objections from the upper house’s legal committee, will see a significant cut to mandatory pension increases scheduled for June.

The government says the move is necessary to keep public finances in order. The one-off change to pension indexation would save the Czech budget CZK 19.4 billion this year, CZK 33 billion next year, and CZK 316.4 billion over the next ten years. The pension system is a major concern as the government tries to bring a huge budget deficit under control.

What’s the controversy about?

As in other countries, the pension system in Czechia ensures that pension payments are automatically “indexed” to rise with inflation. An extraordinary rise is mandated if month-on-month inflation exceeds 5 percent, which happened in Czechia in January. As extraordinary pension indexation comes into effect five months after the month of high inflation, pensioners should see their payments increase this June.

But the government’s amendment will see June’s pension indexation significantly reduced. While the average monthly pension should increase by CZK 1,770 given the level of inflation, the average pension will instead rise by only CZK 760.

The opposition claims the government’s move is unconstitutional and portrays it as “robbing” the elderly. Despite such criticisms, governing parties have managed to push the legislation through both lower and upper houses of parliament.

bank notes czech bank notes Illustrative image: iStock / karelpesorna
Illustrative image: iStock / karelpesorna

It is now one of the first matters on the agenda of newly inaugurated President Petr Pavel, who has also expressed reservations about the lower indexation. At the same time, he agrees that the current pension system is unsustainable and that it needs a “reset” as soon as possible. His position on the legislation is expected to be made public this week.

How does the Czech pension system work?

The Czech retirement age depends on when you were born, rising by two months each year until it hits 65 in 2030. This does not affect people already over the age of 57.

FEATURED EMPLOYERS

People now at retirement age qualify for an old-age pension if they have been insured for at least 35 years. Those who have already paid social insurance for 35 years or more can claim a pension early, but it will be lower than it would be if they kept working up to the standard retirement age.

Czech pension payments consist of two parts: a “basic amount”, which is the same for all pensioners and corresponds to 10 percent of the current average working wage; and a “percentage amount,” which varies from person to person depending on their number of years working, their contribution to the pension system, and their number of children.

The government’s proposed lower indexation of pensions would affect this second portion of payments, increasing it by 2.3 percent for all pensioners instead of 11.5 percent, with an additional CZK 400 added to help those with the lowest payments.

The average old-age pension was CZK 19,438 in January and will exceed CZK 20,000 after the extraordinary indexation in June even with the government’s planned downgrading of pension increases.

Do expats have the same pension rights as Czechs?

According to Integrační Centrum Praha, anyone who has reached retirement age and paid social insurance for at least 35 years is entitled to a Czech pension. When claiming your pension, you have to provide proof of your identity, your working history, insurance payments, and other factors affecting your pension entitlement, such as the birth certificates of your children.

Expats’ pension claims can, however, be more complicated if they spent some of their working life in different countries. “If you’ve worked in multiple countries, you’ll receive a so-called partial pension – i.e., from the governments of each of the countries, you’ll receive an amount based on the time spent insured in that country,” say Integrační Centrum Praha.

There’s no catch-all system for combining pensions from different countries; payments depend on bilateral agreements between Czechia and the other countries where you have worked. Those approaching retirement should find out whether such agreements mean their pension contributions abroad will count towards their pension benefits in Czechia.

Employees have their social insurance payments automatically deducted from their monthly salary. For employees on reduced employment terms, such as the DPP and DPČ systems, social insurance payments are covered by the employer if the monthly salary is above CZK 10,000 or CZK 3,500 respectively. Self-employed people pay social insurance independently, through monthly deposits to ČSSZ.

Other activities which count towards the 35 years of contributions needed to claim an old-age pension include full-time study, caring for a child under four years old, and looking after a disabled relative.

Receiving pension payments doesn’t disqualify you from working. If you work while claiming your full pension, your pension payments will grow by 0.4 percent per year. If you claim only half your benefit while continuing to work, your payments will grow by 3 percent each year. If you choose to continue working without claiming your pension, your payments will grow by 6 percent each year. 

Like Czechs, expats have the option to top-up their future pensions by opting for pension insurance. According to Integrační Centrum Praha, “its main advantage is that it is available from as little as CZK 300 per month, and the government contributes CZK 90 – and the higher you opt to save each month, the more government contribution you’ll receive.”

“We think this topic is very important to think about in advance, which is why we organize educational seminars on this topic once a year in different languages,” Michaela Palánová from Integrační Centrum Praha told Expats.cz.

Pensions may seem complicated, but everyone obeying the laws of working in Czechia can be confident that they’re already paying into the system, though people who have worked in multiple countries should seek individual clarification before they retire. 

But as the government controversy shows, whether or not pensions will be able to keep up with the rapidly rising cost of living in the future is another, more difficult question.

Would you like us to write about your business? Find out more