PENSION COMMITTEE REACHES AGREEMENT. IT WILL START WORKING ON THE POSSIBLE SPLIT OF THE FIRST PILAR INTO SOLIDARY AND MERIT BRANCHES

PENSION COMMITTEE REACHES AGREEMENT.  IT WILL START WORKING ON THE POSSIBLE SPLIT OF THE FIRST PILAR INTO SOLIDARY AND MERIT BRANCHES

Future pension reform could include the division of the existing first (pay-as-you-go) pillar of the pension system, into two branches – solidary and merit-based branches. The Fair Pensions Committee agreed unilaterally at its meeting on Friday 11 October that it will work further on the concept and discuss all the related changes in parameters at its future meetings. Committee Chairman Danuše Nerudová provided information to that effect after the meeting.

According to the concept, the first pillar of the pension system, which now provides for most of Czech pensioners’ income, should be split into the zeroth merit branch, financed from the national budget, and first solidary branch, financed from social security insurance paid by citizens. The question is from what source and how precisely the national budget will gain money for the financing of the zeroth pillar. For example, many politicians and experts from the Czech Republic and abroad are calling for a change in the tax system.

The division of the existing first pillar in two is planned as one of the changes that will help address the long-term unsustainability of the pension system, to which attention has been repeatedly drawn, not only by the Czech Fiscal Council in its Reports on long-term sustainability of public finance, but also mentioned by other domestic institutions, including the Ministry of Labour and Social Affairs and the Ministry of Finance. Warning against the drop of the Czech pension system into increasing deficits is also coming from abroad, for example, for the Organisation for Economic Cooperation and Development. One of the main reasons is the expected demographic development, according to which the number of people of retirement age in the Czech Republic will continue to grow.

Feature photo: MPSV