Czech lower house passes law tightening conditions for early retirement, slowing pension growth

The Czech Chamber of Deputies today passed the newest amendments to the country's Pension Insurance Act, which introduces several key changes to early retirement conditions and pension re-evaluation. The draft act needs to be read by the Senate and signed by President Petr Pavel before it takes effect in September. 

The changes allow individuals to choose early retirement after making a minimum of 40 years of insurance contributions, as opposed to the current requirement of 35 years.

According to the draft, early retirement will be an option from three years before the regular retirement age, reducing the current period of five years. However, for individuals with at least 45 years of insurance contributions, the reduction in early retirement benefits will be lessened.

Those with less than 35 years of insurance contributions will be able to apply for a pension two years after the regular retirement age, provided they have paid insurance for at least 30 years. Currently, this option is only available after five years.

People engaged in physically demanding professions will have the option to retire earlier, but this will entail higher insurance contributions from their employers. The list of qualifying professions is still under development.

The Ministry of Labor and Social Affairs estimates that the average old-age pension in January 2024 may reach CZK 20,700 monthly, a potential increase of CZK 400 compared to 2023. Exact data will be available after Sept. 4, when the Czech Statistical Office publishes year-on-year wage growth for the first half of the year.

At present, pensions increase at the rate of inflation and half of the increase in real wages. Under the changes, from next year only increases in pensioner household prices will be taken into account. Pensions will also rise by one-third of the increase in real wages, rather than half.

The growth rate of new pensions will decrease by approximately CZK 180 per year. However, new pensions are still projected to increase by approximately CZK 10,000 over the same 10-year timeframe. The retirement age will also be newly set every year for people who turn 50 years old, in accordance with the development of Czechia’s life expectancy.

The updated law aims to reform and stabilize the pension system in a bid to save the government money. The opposition, however, has fiercely criticized the government for unjustly “taking away” pensioners’ money and threatened to appeal to the Constitutional Court.