The pension demands of Czech households have increased by CZK 24 billion to around CZK 17,460 billion at the end of 2020, according to the Czech Statistical Office (CSU). This is equivalent to 305.8% of the country’s GDP, marking an increase of 4.7 percentage points year on year. The vast majority of pension demands are in the state pension insurance system, with old-age pensions comprising three-quarters of the total volume. Pension claims for women are higher than those for men in the cases of old-age pensions and pensions for widows and orphans, while the proportion is balanced for disability pensions.

The Czech Republic last published its data on pension demands in 2018, with the CSU publishing the data for the years in between voluntarily. The system has been flagged by statisticians as problematic for some time, with the pay-as-you-go pension system, which is the key mechanism of pension funding in European countries, becoming increasingly unsustainable due to ageing populations and longer life expectancy.

The issue of pension reform has been broadly discussed across most EU member states. In 2020, the European Commission launched the “Green Paper on Ageing”, which sought to initiate a discussion on the future of pensions in the region. The report highlights the need for a collective response to the challenges posed by ageing societies, with proposals such as the creation of a pan-European personal pension product, the European Personal Pension Account, as a means to address potential shortfalls in national pension schemes.

Other proposals include an EU-wide comparison tool for pension products and a common set of principles for effective supplementary retirement income. The Green Paper also calls for better access to lifelong learning opportunities, training and reskilling, which would support longer working lives.

Given that the population of the Czech Republic is ageing at a faster rate than the European Union average, the need for reform is particularly pressing. The National Reform Programme 2021 submitted to the EU by the Czech government identifies pension reform as one of the key areas requiring immediate attention, with a focus on making the system sustainable and enhancing the adequacy of pensions.

The ageing population is also driving the debate around the potential increase in the retirement age. Although this issue remains controversial, with some arguing that it would place additional burden on older workers, others argue that it would be necessary to ensure the sustainability of the system.

In summary, the increase in pension demands of Czech households highlights the need for reform in the country, as well as across the European Union, as ageing populations place pressure on the sustainability of the pay-as-you-go pension system. The proposals outlined in the European Commission’s Green Paper on Ageing offer a potential way forward for a collective response to this challenge.

Article by Prague Forum