Children and Grandchildren Would Pay for Higher Pensions, Says Economist

The issue of pension adjustment in the Czech Republic has sparked a significant debate. Mainstream economist Vít Hradil has recently voiced his perspective on the impact of potential increases in pension amounts. If the Constitutional Court overturned the government’s reduction of the exceptional valorization last year, current pensioners would benefit from higher pensions. However, their children and grandchildren would later foot the bill, as the pension system lacks the necessary funds.

The government’s reduction of the extraordinary pension valorization by an average of a thousand crowns last year has been justified with fiscal responsibility and the risk of significant economic damage. This is not only a financial question but also a political and societal one, as it involves the subjective perception of fairness and wealth distribution in society.

Interestingly, while the current pensioners would indeed receive higher pensions, these would subsequently have to be paid by their children and grandchildren, as the pension system does not have the money. The difference in impact on individual pensioners is also arguable. The generation that happened to be “there” during the extraordinary valorization would have significantly higher pensions than pensioners who came shortly after them and, therefore, had the misfortune of “not being there.”

The government’s proposed changes in the pension system, which, according to the Minister of Labour, Marian Jurečka, are supposed to bring sustainability to the pension system, are not going to be sufficient for permanent sustainability. Still, they will significantly improve the pension system’s balance. The measures almost do not target current pensioners or those who will retire shortly. These generations still have the good fortune that enough young people in the productive age can keep the pension system running.

Lastly, the key to the proposed pension reform is breaking the existing taboo about the inviolability of the retirement age. From the perspective of the entire system’s sustainability, this is crucial because it directly impacts the ratio between working people and pensioners. The labor market, the quality of health care, and the whole society are constantly changing and will continue to do so. It is, therefore, logical that the retirement age should somehow reflect these changes.