President Pavel signs pension reform into law, despite hesitancy

The president faces a crucial decision in the coming day as the government awaits his stance on the pension law amendment. Staff ČTK

Written by StaffČTK Published on 01.09.2023 10:27:00 (updated on 11.09.2023) Reading time: 3 minutes

President Petr Pavel this afternoon signed into law a controversial and much-debated reform of the Czech pension system. His central grievances stem from specific sections of the law, although he agreed today that the reform "as a whole goes in the right direction" of improving the country's pension strategy.

Government spokesman Václav Smolka stated that Prime Minister Petr Fiala will comment on the next steps only after Pavel announced his final decision. Lawmakers had hoped that parts of the law would take effect from Sept. 1.

Pavel's reservations about the proposed pension changes have been a topic of discussion. He has noted two main issues. First, that the reform may make the one-time reevaluation of pensions during an inflationary period (such as the past year) more expensive for the state than the current system.

Second, he sees the shortening of the period for early retirement – from five years to three – before the standard retirement age to be problematic. The sudden and abrupt reduction in the period may cause financial issues for potential retirees, Pavel says.

Besides pensions, Pavel also discussed next year's budget preparation, the consolidation package, nuclear energy, and proposals for ambassadors with Fiala at a Thursday meeting.

The government's amendment aims to tighten the rules for early retirement and slow down the regular January pension reevlaution. It introduces a temporary addition to replace the current extraordinary reevaluation in the event of higher price growth. The Senate approved this bill on Aug. 23.

Signing the pension amendment during September will affect the rules for early retirement. The president's late signature will push back the change by at least a month. Delaying the effectiveness of the law can cost the state coffers billions of crowns per month.

Ombudsman Stanislav Křeček also objects to the amendment's tightening of early retirement conditions. He noted that the reduction of the prematurity period from five to three years, practically overnight, would adversely affect seniors who would meet the current conditions in the near future.

In summary, the amendment will restrict early retirement to no more than three years before reaching retirement age, compared to the current allowance of up to five years. The amount received will be reduced more significantly, and the meritorious part of the pension will not be valorized until the pension's due date. A year later, the extension of the minimum period of payment of contributions as a condition for early retirement, increasing it from 35 years to 40 years, is set to take effect.

The proposed changes would also impact pension reevaluation, with pensions now increased by inflation and half of the increase in real wages during regular January valuations. Starting next year, price increases for pensioners' households would be exclusively considered, accounting for a third of real wage growth as in the pre-2018 system.

Two-thirds of people believe that presidential powers should not change, according to data from the Center for Public Opinion Research. Twenty-two percent of people think that the head of state should have more powers, while eight percent think he should have less. The research was conducted between May 26 and July 24 on a sample of 929 people over the age of 15.

The postponement of this amendment may result in increased state budget expenses next year due to unrestricted early pensions, contrary to the original plan, Tomáš Machanec, the director of the Department of Social Insurance of the Ministry of Labor, told ČTK. The Ministry of Labor has yet to specify the financial impact.

This situation echoes Pavel's previous reservations about government pension adjustments, emphasizing the complexity and potential legal implications of these changes. In March, he signed a controversial government amendment to reduce the June valorization of pensions while acknowledging the arguments for slowing pension growth.

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