Prime Minister Petr Fiala (ODS) confirmed on Wednesday after a cabinet meeting that the government is planning a more extensive reform of pensions. In addition to adjusting the indexation of assistance, the ruling coalition intends to motivate people to save more for retirement.
The state contribution to pension savings must be adjusted. The support should now start with a monthly deposit of CZK 500.
“The number of pensions from the pay-as-you-go system cannot be relied upon to cover the costs of a dignified life. Therefore, it is crucial to motivate all people. Still, especially today’s young generation, to create their savings to help cope with the difficult situation in old age,” Pavel Peterka, an economist at Roklen, said.
Other analysts also suggest that, at least for today’s 40-somethings and younger, pensions will be even less generous than they are today, so people with average incomes would be without savings if it were not for the help of children or the safety net of the social system.
“So far, only about half of young people under 35 are saving for their old age. The current very conservative and somewhat rigid system of pension funds is probably not very attractive to the younger generation. They prefer to try investing in cryptocurrencies or digital NFTs. These are hazardous and unpredictable investments,” said Helena Horská, an economist at Raiffeisenbank.
According to her, the state should expand the possibility of saving for old age and offer the younger generation an exciting and modern way of investing, which will also reasonably balance risk and return. For example, an individual pension account is provided. She would also like to see employers involved, especially in demanding professions.
Contributions of up to five hundred
An investment pension account is one of the instruments being developed by the Treasury. It should also allow investments in shares, bonds, and units, and the tax deduction could be doubled to 48,000 a year compared to now. In the case of pension savings, the Ministry of Finance has proposed to adjust the amount of state support so that instead of the current CZK 300 per month, it would start at CZK 500. The contribution would remain at the current CZK 90.
At the same time, the upper limit for entitlement to the allowance would rise from CZK 1,000 to CZK 1,500. The maximum budget would be CZK 270 instead of the current CZK 230.
Even these parameters are subject to change, however, as the proposal has not yet been submitted to the government, although it was initially expected to be discussed by the cabinet in January.
“The changes in the third pension pillar are part of a law related to developing the capital market. Although it has already passed the inter-ministerial comment procedure, debates are currently underway at the political level on the specific implementation of the legislative process,” Finance Ministry spokesman Mikuláš Halás said.
According to him, it is not yet clear whether the law will go into the legislative process on its own or as part of the consolidation package. “The latter is currently still being discussed within the coalition at the expert and political levels, and specific measures should be known by the end of March,” Halás added.
Although economists have differing opinions on the matter, the government’s National Economic Council (NERV) has recommended that the state tighten conditions for pension savings and remove half or all of the state’s support for lump-sum payouts at retirement, as is practiced by a more significant number of people today.
People should receive pension contributions throughout their retirement to be better protected when they reach old age.
The Treasury Department would not comment on whether or not it liked the change. But the department said it was part of a debate about the whole complex of changes.
Most pension funds lost money last year, which is not helping client interest. At the end of last year, 4.39 million people were saving for retirement in the third pillar of the pension system, down 40,000 year-on-year.