Would you like to receive an annuity? That’s how it really works

What is meant by rent in the Czech Republic

Laymen often feel that an annuity is “something like a pension“. In fact, it is a general term for a regular payment that a person receives by law or contract. It most often means:

• Compensation for loss of earnings – typically after a work-related injury or occupational disease. The employer (or their insurance company) pays the difference between what the person would have earned and what they earn after the injury.
• Survivor annuity – an allowance for survivors who have lost a breadwinner.
• Financial annuity – regular income from investments, insurance products or property.
• Real estate annuity – a special product (called a reverse mortgage) where the owner receives lifetime monthly payments in exchange for mortgaging or transferring the property.

Each type of annuity has different rules and ways to defend yourself. Therefore, it is important to know exactly what kind of annuity is involved.

Pension after an occupational accident and occupational disease

The most common legal context for pensions relates to occupational accidents and diseases. The conditions are laid down in the Labour Code and the relevant implementing regulations. Simply put: if you cannot earn as much as before because of an accident or illness, you are entitled to compensation for the difference.

The amount of the annuity is calculated by comparing the average earnings before the injury and the actual earnings after the injury. Benefits paid (such as disability pension) are added to this. So, for example, if someone used to earn CZK 35 000 a month, but now only manages to work for CZK 15 000 and receives a disability pension of CZK 9 000, then their employer or insurance company will pay them approximately CZK 11 000.

Valorisation is also important, i.e. the annual increase of the pension according to the increase in the average wage. In practice, this means that the annuity is regularly recalculated to match inflation and wage growth.

The problem arises if the insurance company claims that your health has improved or that you are capable of earning more. Then you risk having your annuity reduced or withdrawn altogether. In such cases, you must actively defend your rights – whether through objections, expert testimony or a lawsuit. We will be happy to help you with this.

Property annuity

A special form of annuity is the so-called property annuity or reverse mortgage, which is often offered by (especially non-bank) financial institutions to seniors. The principle is simple: you own an apartment or house but need money to live on. The bank will pay you monthly sums (or a lump sum) and, in return, secure a mortgage on the property. After your death, your heirs will settle the debt by selling the property.

It sounds tempting, but it has major risks. The value of the annuity paid is usually significantly lower than the market value of the property, high fees and interest also come into play, and you lose the flexibility to dispose of the property. If you want to preserve an inheritance for your children, you need to consider everything carefully.

There is always the option of taking a different course of action, for example, selling the property and moving to a smaller flat, negotiating an exchange or easement, or renting out part of the house. But before you sign an annuity contract, it’s a good idea to have it checked by a lawyer.

An annuity contract

In addition to the legal entitlements to an annuity, there is also the possibility of arranging a regular payment purely by contract, through a so-called annuity contract, which is regulated by the Civil Code. In such a contract, one party undertakes to pay the other party for life or for a certain period of time a pre-agreed benefit, either in cash or in kind (for example, accommodation or food).

A typical example is the situation in a family where parents transfer a house to their child. In return, the child pays them a certain amount of money on a regular basis, which serves as a ‘pension’ and security for their old age. However, this is not a state pension but a private arrangement between people. That is why it is important to draw up a proper contract and to treat everything legally so that the terms are fair and protect both parties.

What are the conditions for paying an annuity

The terms of annuity payments vary depending on the type of annuity. In the case of a work-related injury or occupational disease , you have to prove that the difficulties actually arose out of the work. A medical report is essential and the employee must provide evidence of his or her original and current earnings.

In the case of survivor’s pensions, the immediate family members, i.e. children, spouse or parents if they were dependent on the deceased for support, are entitled.

A financial or pension annuity is governed by the terms of a specific contract, for example with a pension company or insurance company. All claims here arise directly from what is agreed in the contract.

In the case of a property annuity, i.e. a reverse mortgage, the provider mainly assesses the age of the claimant and the value of the property. The contract then usually contains an obligation to pledge the property and other conditions that the client must meet.

The common denominator of all forms of annuities is that their payment is always conditional on the provision of relevant documents, be it income, health, a contract or a court decision.

When the annuity is at risk of being withdrawn, stopped or reduced

The withdrawal, reduction or cessation of an annuity is one of the biggest concerns of those who receive it. While this is not a rare situation, adjustments to payments can occur quite frequently because the annuity is always contingent on specific circumstances.

In the case of a work-related injury or occupational disease, the typical reason is improvement in health. If the assessing doctor concludes that your health has improved enough that you can return to work without major restrictions, the pension may be reduced or withdrawn altogether. However, this conclusion may not always be correct, so it is important to know how you can defend yourself – for example, by getting an independent assessment or going to court.

Another common reason is an increase in earnings. An annuity is designed to make up the difference between your original and current earnings. So if your earnings after an injury or illness approach or exceed the original amount, your entitlement to an annuity will logically end or the amount will be reduced. This can happen, for example, when you change jobs, get promoted or start a business.

In the case of financial products such as pension annuities or annuities on property (reverse mortgages), a reduction in payments may occur if the terms of the contract are breached. For example, the provider may require you to pay taxes, insurance or keep the property in good condition. If you fail to meet these obligations, it may reduce or stop payments altogether.

In all of these cases , you may be able to defend yourself. First, you need to file an objection directly with the insurance company or annuity provider. If they don’t comply, you can go to court. It is important to have strong supporting documents on hand, especially expert medical reports, proof of income and other evidence to back up your claim. The sooner you start dealing with any rent problems, the more likely you are to win your claim. Legal assistance in these situations can be crucial, as an experienced attorney can spot weaknesses in the insurer’s process and inconsistencies in assessments.

Summary

An annuity can take various forms in Czech law and practice – from compensation for loss of earnings after an occupational injury or illness, to survivor’s annuity for the family of the deceased breadwinner, to financial annuity from investments or pension products and the so-called real estate annuity, i.e. reverse mortgage. It is always a regular income with precise rules that vary according to the type. In the case of occupational accidents and diseases, the employer or insurance company pays the difference between the original and current earnings, immediate family members are entitled to a survivor’s annuity, financial or pension annuities are based on contractual terms and property annuities are based on the mortgage on the home or apartment. In all cases, relevant documents must be provided, from medical reports to contracts and proof of income. The biggest risk to the recipient is the withdrawal or reduction of the annuity, which can occur when health improves, earnings increase or contractual obligations are breached. In these situations, you can defend yourself – first by objecting to the insurance company or provider, and if that doesn’t work, by suing in court. The key is to have good evidence and timely legal advice to help you pursue your claim.