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Czechs eye mid-2006 for pension reform

26.08.04 Investment and Pensions Europe

CZECH REPUBLIC – The Czech Parliament approved the new government’s programme, which includes a pledge to prepare a reform of the pension system by the next general election scheduled for mid-2006.

“The new pension system will continue to employ the existing pay-as-you-go system guaranteed by the state, but will reflect more the individual’s income and pension contributions,” said Martin Jahn, vice premier for economic issues, adding the new system should bring financial stability and long-term functionality.

The new government wants to support voluntary pension insurance. The government’s plan also includes employee pension schemes.

“The government will adopt measures to reduce the abuse of welfare payments in order to maximize contributions paid to the pension system,” said Jahn.

The new government will stick to previous plans to establish reserve fund to cover the costs of a future transition to the new pension system. Czech Finance Minister Bohuslav Sobotka believes the fund should be financed by privatization revenues and dividends from large companies where the state owns a stake.

An expert group that was established in April will continue to meet to come up with solutions that are to be proposed to the new government.

The government wants to maintain the pay-as-you-go system as the cornerstone of any future scheme. On the other hand, analysts believe the only viable option that would solve the Czech pension system must be based on mandatory private pension insurance.

Abridged from Investment and Pensions Europe