The retirement age keeps increasing. At the same time, this is not the only factor at play. When you can retire also depends on when you pay your pension. In any case, the younger you are, the less you should rely on your pension. In this article, we look at how retirement is determined and give you advice on how to cope with the likely change to the pension system.
The Czech pension system is based on pay-as-you-go financing, with current workers contributing part of their income to fund the pensions of current pensioners.
Pension insurance is part of social insurance payments or social security contributions. This has three parts – pension insurance, sickness insurance and the contribution to the state employment policy. The largest amount of this insurance goes to retirement pensions and then to health care, which together account for ¾ of total expenditure.
But in addition, this money also goes to other types of pensions (such as disability or orphans’ pensions) and other assistance to the needy, such as housing allowances.
You can read more about social insurance, its amount and its purpose in our next article.
Your retirement age depends on 2 factors – your date of birth and when you paid your pension. The retirement calculator is available directly on the Czech Social Security Administration website, where you can find the pension application. This includes not only the retirement calculation, but also the estimated pension amount.
Now let’s take a look at what exactly determines the retirement period:
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If you were born after 1971, you have a uniform retirement age of 65. If you were born between 1936 and 1971, your retirement age is calculated according to your exact year of birth. Gender also plays a role and, for women, the number of children brought up.
Thus, for men, the retirement age for this age group ranges from 60 years and 2 months (for a man born in 1936) to 65 years (for a man born in 1971). Women reach retirement age earlier and it decreases further with the number of children they have raised. If a woman was born in 1936 and has raised 5 or more children, she reaches retirement age at 53. On the other hand, a woman who was born in 1971 and has raised fewer than 5 children will not retire until she is 65.
A summary table of retirement can be found on the CSSA website.
The second condition for eligibility for retirement is that you have met the minimum pension payment period. This must be at least 35 years if both contributory and compensatory periods are included, or at least 30 years if only contributory periods are included.
Contributory periods are periods when a person is actively contributing to a pension scheme. In other words, it is the time when a person pays social security contributions through his/her work activity. This can be employment, business activity, service, as well as various temporary jobs based on a work performed or a work activity agreement. In addition, this also includes prison work or foster care.
In general, the performance of work with monthly earnings of more than CZK 4,000 for employment contracts, temporary employment and other employment and CZK 10,500 for temporary employment is counted.
Compensatory time is a period of time when a person is not economically active and does not pay pension insurance, but the time is still counted towards pension insurance. For example, this includes periods of study, periods of unemployment while registered with the employment office, periods of caring for a child up to the age of four or for cases where a person suffers from a third degree disability.
Find out when you are entitled to unemployment benefits.
The pension system and the need to reform it is a relatively hot topic in our country. The pay-as-you-go system is not sustainable. This is mainly due to demographic changes in society and an ageing population.
The number of pensioners receiving pensions for a longer period of time is increasing due to longer life expectancy. At the same time, however, fewer children are being born, which means that fewer and fewer working people will be contributing to the system. This ultimately creates a disparity between the number of contributors and beneficiaries and increases the pressure on the current generation of workers who have to finance an increasing number of pensioners. For this reason too, pension reform to respond to this change in society has been a hot topic in recent days.
According to recent surveys, there is even a resignation among young people that they will not have a pension and will either have to continue working in old age or save for their retirement themselves. Some government policies are also trying to help this saving. One of the most typical of these is the so-called supplementary pension saving scheme:
Supplementary pension saving is a voluntary form of saving for retirement that is designed to provide additional financial security in old age over and above pension provision. It works by taking out a contract with a pension company and sending a set amount into an account on a regular basis.
The state then supports supplementary pension savings by providing state contributions. The amount of state support depends on the amount you pay in each month. For example, if you save CZK 300 a month, you will receive CZK 90 from the state; if you save CZK 1 700, you will receive a maximum state contribution of CZK 340. This saving is also tax-advantaged, which makes it a popular work benefit for employees.
What other work benefits can you get from your employer? Find out in our article.
But the question remains, how much to save for retirement? And the answer is certainly not clear-cut. Everyone is used to a different standard of living. For example, someone spends 20 000 a month just on groceries, while someone else is used to living modestly and needs 10 000 for a family of five.
The general belief is that the current figure for a pensioner is CZK 2 million. However, this is the amount that applies now. With rising inflation and general changes in society, a higher amount is to be expected in the future. You can use the following calculation, which does not take inflation into account, to get at least an approximation:
Example calculation:
Calculation: CZK 10 000 × 12 months × 20 years = CZK 2 400 000
In this case, you should have approximately CZK 2.4 million saved.
Retirement age is determined by year of birth, sex and, for women, the number of children raised. To qualify for an old-age pension, you must also meet a minimum period of pension payments.
In addition to relying on a pension, we also recommend saving for retirement individually, for example in the form of a supplementary pension saving plan. The amount of savings required depends on each individual’s lifestyle and expected monthly expenditure. The calculation of pension needs is therefore individual, but ranges in the lower units of millions of crowns.
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