The Pension System of the Czech Republic ended the first quarter with a deficit of 25.7 billion crowns, the worst shortfall of the period
The pension system of the Czech Republic has undergone significant changes in recent years due to the growing demographic pressure and the increasing deficit of the pension budget and is facing numerous challenges, including a declining birth rate, an increasing life expectancy, an aging population, and a growing deficit.
What is the situation of the pension system in the Czech Republic?
The pension system of the Czech Republic ended the first quarter with a deficit of 25.7 billion crowns, the worst deficit of the period. Current data collected by the Ministry of Finance on the management of the pension insurance system show that throughout last year, revenues exceeded pension expenses by 21.5 billion crowns. The last increase in pensions occurred in January, but they will increase again from June due to inflation, but in total, a decrease of about 80 billion crowns is expected this year in the Czech pension insurance. In the first quarter, 147.4 billion crowns were collected for pension insurance, which is approximately 13.1 billion crowns more than last year, but despite this, expenses were almost 29.6 billion crowns more than in the first quarter of the previous year, reaching 173.1 billion crowns.
Overview of the pension system
Over the past 15 years, pension spending has doubled, approaching the level of 600 billion kronor last year, with the increase accelerating after extraordinary assessments to compensate for inflation. This year, however, 30 per cent of state expenditure is planned for pensions and almost 690 billion kronor is expected to be paid out. Regarding the pension insurance system, the Ministry of Finance emphasises that it is highly dependent on the economic cycle. In particular, the pension account was in surplus in 2018 and 2019, 2004 and 2005 and then in 2007 and 2008. The highest deficits were, however, in the crisis years of 2012 and 2013 in the amount of 55 billion kronor per year. According to the National Budget Council’s (NRR) report on the long-term sustainability of public finances, the balance of the pension insurance system could reach four per cent of gross domestic product (GDP) in the late 1950s. Nowadays, the state pays nine per cent (9%) of GDP (Gross Domestic Product) to pensions and by the middle of the century would be paying almost thirteen per cent (13%). So far, the highest level was in the crisis year of 2012 with 9.5 per cent of the Gross Domestic Product, in contrast, the smallest share going to pensions was in 2004 and 2007 with 7.6 per cent of GDP.
What are the possible solutions?
The Ministry of Finance states that if the social security system is in deficit, it does not mean that the state does not have old age, disability and survivors’ pensions to pay, however, it must use other sources of funding in the budget to cover the need for increased pension expenditure. In addition, economists point out that the pension system is unsustainable in fact the government wants to present proposals for its reform changes in May. There is talk of an early pension for demanding professions, a delayed retirement for others based on life expectancy and years of service, or a more moderate increase in pensions, an addition already applied by the government for the extraordinary June enhancement. This year the state should have 15.4 billion crowns.
Source: https://www.patria.cz/
Graphic Source: https://storyset.com/
Source of images: https://pixabay.com/
