Calculating your pension is a fairly complex process. Your years of service, the amount of your income and the time you spent raising children, being a parent or in the military all play a role. There are also contributions and other ways to increase your pension. In this article, we look in detail at how the final amount is calculated and what can be included.
The amount of the old-age pension is determined on the basis of two components: the basic rate and the percentage rate. The basic rate is set the same for everyone and is 10% of the current average salary. In 2024, the amount is CZK 4 400. To this basic rate is then added a percentage rate, which depends on your past income on which you have paid pension contributions and also on your years of service.
Your past earnings are taken into account when calculating your pension. Specifically, they are added up each year and the sum of these adds up to what is known as the assessment base. Earnings from 1986 to the year before your pension application are taken into account.
These annual earnings (assessment bases) are then multiplied by a ‘ pension coefficient’, which converts your past earnings into today’s money value (because money loses value with inflation and what you earned in 1990, for example, is not the same as today). This means that if you earned an average wage in 1990 (roughly 3,300 crowns), this earnings will be taken as if it were today’s average wage (43,941 for 2024).
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The individual assessment bases are then averaged to calculate your average monthly earnings over your working life, i.e. your personal assessment base. This will then go through tworeduction thresholds. These thresholds are set at 44% of average earnings (CZK 19 346 in 2024) and 400% of average earnings (CZK 175 868 in 2024).
Earnings exceeding the first reduction threshold are counted only up to 26 % and earnings exceeding the second reduction threshold are not counted at all. These reduction thresholds are designed to take account of differences between insured persons’ incomes and to prevent high earners from receiving a disproportionately high pension.
How do I apply for an old-age pension and when do you become entitled to it? Find out in the next article.
After the reduction of the personal assessment base, we get the so-called calculation base, from which the percentage assessment is calculated directly. This is calculated by giving you 1.5% of this calculation base for each full year of pension insurance. For example, for 40 years of insurance, the percentage assessment is 60% of the calculation base.
The percentage rate is then added to the basic pension rate to give the total amount of your retirement pension.
Let’s take a concrete example of calculating an old-age pension:
The assessment base (the average income for each year from 1986 to the year preceding the pension application) will be a simplified figure of CZK 40 000 per month.
The personal assessment base will be the average of these assessment bases.
Period of insurance: 40 years.
The basic pension assessment in 2024 is set at CZK 4 400 per month.
The assessment base is the sum of all earnings during insurance (from 1986 to the year preceding the application). This base is then converted to today’s value using the pension coefficient.
Let us imagine that the insured person had the same assessment base each year, and that this base, converted to today’s values, is CZK 40 000 per month.
First reduction threshold: 44% of the average wage = CZK 19 346.
Second reduction threshold: 400 % of the average wage = CZK 175 868.
If you have an assessment base of CZK 40 000 per month, this is the amount between these two thresholds. After taking into account the reduction thresholds:
If your monthly income is CZK 40 000:
The first CZK 19 346 is calculated at 100%, which is CZK 19 346.
The next 40 000 – 19 346 = 20 654 CZK is calculated at 26%, which is 5 370,04 CZK.
The calculation base will therefore be the sum of these parts:
cZK 19 346 + CZK 5 370,04 = CZK 24 716,04.
The percentage assessment is calculated on the basis of the calculation base. For each year of insurance, you will receive 1.5% of the calculation base. Assume that the insured has worked for 40 years.
40 years × 1,5 % = 60 %.
60% of CZK 24 716.04 (the calculation base) is:
cZK 24 716,04 × 0,60 = CZK 14 829,62.
To this percentage is added the basic pension rate, which is CZK 4 400 in 2024.
cZK 14 829.62 + CZK 4 400 = CZK 19 229.62.
The monthly retirement pension of this insured person would be CZK 19 229.62.
What is the specific situation for self-employed pensioners, how much do you actually pay for pension insurance and how much do you get in the end? The answer can be found in our article.
One question remains unanswered, however, and that is how the time you have spent on maternity leave or parental leave counts. These periods are known as ‘compensatory insurance periods’. These are periods when you were not gainfully employed and did not pay pension contributions, but they still count towards your pension.
Replacement periods of insurance include:
Replacement periods of insurance become ‘ excluded periods’ when determining the amount of the pension. They have a positive effect on the resulting pension. The days of excluded time are deducted from the total number of days on which average earnings are calculated, thereby increasing the average.
Let’s explain how this works with an example: Mr Novák has average monthly earnings of CZK 30 000. However, during the year he suffered an accident and spent three months on sick leave. If the days of sick leave were not deducted, the average monthly earnings would be lower, in this case CZK 22 500. However, by deducting the days of sick leave from the total number of days, the average earnings are still calculated on the basis of CZK 30 000, which affects the amount of the pension.
Social security is a state-organised system that provides financial support and services to individuals in the event of old age, sickness, disability, maternity, unemployment or loss of breadwinner. See an overview of when the state protects us and to what extent.
However, it is possible to get top-ups on top of your final pension, which can increase the final amount substantially, as well as some steps you can take to increase it yourself. Let’s take a look at the most typical ones:
Educational allowance is one of the most common supplements to your pension. This is compensation for the time a person has spent raising children. This supplement is therefore intended for people who, as a result of bringing up children, have been unable to engage fully in gainful activity, which has had a negative impact on their future pension.
The allowance is granted for each child who has been brought up for at least 10 years before reaching adulthood. The exception to this is if you take on a child over the age of eight or if the child has died before the age of five, then rearing is required for at least five years.
In 2024, the amount of the education allowance is set at 500 CZK per month for each child raised. So if you have raised more children, multiply this amount by the number of children.
Child-rearing allowance can be awarded to both men and women who have dedicated themselves to raising a child. However, there is always one person per child who can receive child maintenance and this entitlement cannot be transferred. Thus, if, for example, a wife has been involved in bringing up a child but has died prematurely, her husband and the child’s father cannot receive child maintenance. It also applies only to women who are not subject to the rules on reducing the retirement age on the basis of the number of children brought up (women born after 1971). Those who have committed crimes against the life and health, against liberty and the right to protection of personality, against human dignity in the sexual sphere or against the family and children are not entitled to receive childcare.
You have to apply for childcare and prove that you have been involved in the child’s upbringing. However, an affidavit is sufficient to prove this. The application can then be submitted to any district social security office.
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There may be a dispute over who raised the child. For example, in a situation where spouses are divorced and both think they are entitled to child support. In this case, the situation will be investigated by the competent administrative authority, which will determine which side is right (it can ask for related documents, question witnesses, etc.).
You can also increase your pension by working in it, and not only by the money you earn by working. In fact, for every 360 days spent in gainful employment, your percentage assessment increases by 0.4% of the calculation base. And if you work and have only half of your pension paid to you, you can expect an increase of 1.5% of the calculation base for every 180 days you are gainfully employed. But you must apply for the increase in both cases.
Is it worth continuing to work after you have retired? And what’s the situation with employment for seniors? Does the method of employment or the contract of employment change the moment you retire? And what about early retirement? Find out in the next article.
Another way to increase your pension is by over-servicing. This is when you work and do not receive an old-age pension, even though you are already entitled to it (i.e. you have reached retirement age and have met the minimum period of pension payments). In this case, for every 90 days of over-service, the percentage increase is 1.5% of the calculation base.
This pension supplement is relatively specific. It concerns political prisoners from the communist regime and persons who were killed while fleeing the Republic. Under certain conditions, it also applies to their widows and widowers and to children who were orphaned as a result of imprisonment and were minors at the time of the death of the imprisoned parent.
Specifically, the following amounts are involved:
If the political prisoner was sentenced to death or died while serving the sentence, the allowance for the widow or widower is increased by CZK 3 000 and the allowance for the orphan by CZK 2 400.
This kind of supplement is no longer received by many people today, but let us briefly introduce it. As the name suggests, it applies to participants in the resistance during the World Wars, their widows and orphans who were minors at the time of their death.
Specifically, the amounts involved are as follows:
In the event of the death of a resistance participant during resistance activity, the allowance for the widow or widower is increased by 3 000 crowns and the allowance for the orphan by 2 400 crowns.
In some cases, you should also take into account that your resulting pension is subject to taxation. These are situations where your total annual pension exceeds 36 times the minimum wage for the year. For 2024, the minimum wage is 18,900 crowns per month. This means that you would be taxed on your pension if it exceeds the threshold of 680,400 crowns per year or 56,700 crowns per month.
In this case, the pension is taxed at the classic 15%, but if your total income exceeds 48 times the average wage, then the difference between income up to the 36 times limit and above would be taxed at 23%. This amount corresponds to an annual income of CZK 1 582 812, which is equivalent to an average monthly income of CZK 131 901.
If your pension is taxed, you also have to file a tax return.
The calculation of your future pension is likely to be affected by pension reform in the future. It was recently approved by the Chamber of Deputies and is now awaiting approval by the Senate and the President’s signature. One of the main changes it will bring is a slowdown in pension growth.
Pensions rise every year thanks to indexation, which adjusts their amount in line with inflation and the growth in average wages. Under the new pension reform, this growth in pensions is to be slowed down so that it is not faster than the average wage of a working person. Thanks to the indexation, pensions will continue to grow, but their growth rate is to be reduced by around CZK 200 per year between 2026 and 2035.
Another change is that the minimum pension is to be increased. This corresponds to the sum of the basic assessment and the minimum percentage assessment, which this year is CZK 5 170. According to the pension reform, the new minimum percentage is to correspond to 10% of the current average wage.
The reform should also abolish the increase in pensions based on days of work for working pensioners, but at the same time abolish their obligation to pay pension insurance, which should ultimately increase their net income by 6.5%.
The changes to be brought about by the pension reform are numerous. You can read exactly which ones in our article.
The amount of the old-age pension consists of a basic rate (10% of the average wage, in 2024 = CZK 4 400) and a percentage rate that depends on past earnings and years of service. The percentage is calculated on the basis of the assessment bases (earnings from 1986 onwards) and is adjusted by a pension coefficient which converts older earnings into today’s value. Income above a certain threshold is reduced to take account of differences between insured persons more fairly. For each year of insurance, 1.5% of the calculation base is added. If the annual pension exceeds 36 times the minimum wage (CZK 680 400), it is subject to taxation (15%).
The pension can be increased by additional paymentssuch as childcare (CZK 500 per child) or by working in retirement, which increases the percentage assessment. It is also possible to take advantage of over-service, where the pension is increased for work beyond retirement age.
Certain periods, such as maternity leave, military service or sickness, are treated as substitute periods of insurance and have a positive effect on the pension amount.
Our team of experienced attorneys will help you solve any legal issue. Within 24 hours we’ll evaluate your situation and suggest a step-by-step solution, including all costs. The price for this proposal is only CZK 690, and this is refunded to you when you order service from us.
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