Every year, pensions are increased. This is due to a system called indexation, which adjusts pensions to current prices and average wages. In this article, we’ll tell you when indexation happens, how it is determined and how to find out about indexation.
Generally speaking, valorisation is the process of updating or indexing numerical values (such as payments, benefits or prices) to reflect changes in price levels, inflation and other economic factors. In the context of pensions, it involves periodically increasing pensions to bring their real value in line with changes in economic conditions (inflation and average wage growth). This applies not only to old-age pensions but also to all other pensions (e.g. disability, orphans’ pensions, etc.).
Pension indexation is a key protection against inflation and the erosion of pensioners ‘ purchasing power. Inflation means rising prices of goods and services, which without indexation would lead to a gradual devaluation of pensioners’ incomes. Without regular pension increases, the real value of pensions would gradually decline and pensioners would be able to afford fewer and fewer goods and basic necessities.
The second key reason is social justice and the preservation of living standards for pensioners. Indeed, many of them are fully dependent on the pension system. Regular indexation helps to maintain their standard of living and minimise the risk of poverty among the elderly.
Pension indexation also has a positive economic impact by keeping consumer demand stable. Pensioners usually spend most of their income on basic needs, which supports the economy and business. This cycle then helps to maintain economic growth and stability in the long run.
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Pensions are made up of two components – a basic rate and a percentage rate. The basic rate is the same for all pensioners and corresponds to 10% of the current average wage. In 2024, it is CZK 4 400. The percentage rate is then determined for each pensioner individually and its amount depends mainly on the length of time you have paid pension insurance and the amount of income on which you have paid insurance.
Both of these components are usually increased during indexation. The exception is for early retirement pensions granted after 1 October 2023. For these, only the basic rate of pension is indexed until you reach standard retirement age.
The increase in the basic rate is quite straightforward. The basic rate is to be 10% of the average wage. This means that it increases in line with the increase in the average wage.
The percentage rate then takes account of increases in the cost of living, which reflects the cost of seniors’ consumption basket. This index tracks changes in the prices of food, housing, energy, health care, and other basic items that affect the current cost of living for seniors. It differs from the regular consumer basket mainly because it includes to a greater extent medicines, food and energy costs. Specifically, the percentage is increased so that the new average pension is the sum of the basic pension and the percentage of the previous average pension, plus inflation and one third of real wage growth.
Are you approaching retirement age but don’t know if you’ve met all the requirements? Or don’t know how to apply for an old-age pension, what you need to prove and where to go? Find out how to apply for an old-age pension.
Pensions are indexed on 1 January each year. In 2024, the basic rate was increased by 360 crowns, with no increase in the percentage rate. In 2025, the basic assessment should increase by 260 crowns and the percentage assessment should increase by 0.6%.
So let’s illustrate what this should look like in practice next year:
Mrs Novotná is a 68-year-old pensioner who currently receives an old-age pension of CZK 20 000 per month. Her pension consists of a basic rate of CZK 4 400 and a percentage rate of CZK 15 600.
In 2025, her pension will increase due to indexation as follows:
Mrs Novotná’s new pension will therefore be calculated as follows:
Mrs Novotná will thus have a higher pension than in 2024 by CZK 354. The total increase is therefore less than 2%.
Pension reform has become a hot topic in recent days. It should bring a number of changes, including raising the retirement age and reducing pension growth. What specific changes will it bring? Find out in the next article.
Extraordinary pension indexation occurs when inflation, monitored on the basis of the senior citizens’ consumption basket, exceeds five per cent during the reference period. This is done to compensate for the loss of real value of money and to enable pensioners to maintain their standard of living without a significant deterioration in their financial situation.
A recent example is June 2022, when pensions were subject to an extraordinary indexation due to significant inflation. Under the Pensions Act, the government approved an 8.2% increase in pensions, which represented an average increase of CZK 1 017.
The extraordinary valorization of pensions was linked to this year’s case, when the Constitutional Court rejected a proposal by ANO MPs to repeal an amendment to the Pension Insurance Act. This amendment slowed down the extraordinary valorisation of pensions due to extremely high inflation. Without this amendment, pensions would have been increased by an average of CZK 1 770 instead of CZK 760, placing a further burden on the pension system.
You don’t need to apply for indexation anywhere, it happens automatically and you will also receive an indexation notice automatically. You can receive the notice in several ways. If you receive only one type of pension and this pension is sent to your bank account without cash, you will receive the valorisation notice in the form of a message to the recipient. A beneficiary message is an electronic message that accompanies a payment sent by the bank to the beneficiary’s account.
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If you fall into any of the following categories:
then you will receive the valorisation notice by regular mail. And if you have a data box, it will also be sent to your data box.
If you only receive an electronic notice but need a paper valorisation notice, there are three ways to get it:
Pension indexation is a process of periodic pension increases that protects the real value of pensions from inflation and ensures that seniors’ living standards are maintained. Valorisation takes place on 1 January each year and can include increases in both the basic rate (common to all pensioners) and the percentage rate, which depends mainly on the pensioner’s past earnings. Extraordinary valorisation then takes place if inflation exceeds 5% during the reference period. An example is 2022, when the government increased pensions by 8.2% due to high inflation.
Pensioners will be notified of the indexation automatically – notifications are sent electronically or by post and, if necessary, paper notifications can be obtained via the CSSA website, by telephone or in person at branches.
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