EXPLAINED: How Czechia's pension reform may affect you

The Czech government has recently announced a controversial proposal for pension reform that includes a slower increase in the retirement age. Under this plan, the retirement age will be capped at 67, with a gradual increase based on average life expectancy starting from around 2050. This reform also includes increasing pensions in line with inflation and average wages.

If you are a pensioner in the Czech Republic (or will be soon), the proposed pension reform may have a direct impact on your finances. The average monthly pension is expected to increase by CZK 62, with a total improvement of CZK 355 for the average senior. However, those with below-average pensions may see a smaller increase. 

The Czech pension system is based on a retirement age that gradually increases by two months every year until it reaches 65 in 2030. Those already over the age of 57 will not be affected, and people who have been insured for at least 35 years at the moment qualify for an old-age pension. 

The proposed amendment will affect the second portion of payments, increasing it by 2.3 percent instead of the originally planned 11.5 percent. This means that individuals who have opted for pension insurance may see a smaller increase in their future pensions.

According to the government, this reform is necessary to prevent a potential deficit of CZK 500 billion in the pay-as-you-go pension system by 2050. This means that without changes, the system would not be able to sustain itself in the long term. The government argues that this is a difficult but necessary decision to ensure the sustainability of the pension system.

The Labor Ministry announced last year a change to the country’s pension system, which ultimately will see pension payments rise at slower rates than usual. 

The reform has been passed by both the lower and upper houses of parliament and is now on the agenda of newly inaugurated President Petr Pavel. However, the controversy lies in the government's plan to cut mandatory pension increases, which the opposition claims is unconstitutional and portrays as "robbing" the elderly. The Ministry of Labor has announced that the fixed amount for pensioners will be set at one-tenth of the average wage (around CZK 46,800) for 2025, with an increase of 0.4 percent for the merit component.

While the average retirement pension will see an increase of CZK 62, there will also be a raise in educational fees, which means that seniors will see an improvement of CZK 355 crowns in their pensions starting from January. However, those with below-average pensions will receive less.