Czech Pensions Could Rise Twice as Much as the Law Requires — Economists Sound the Alarm

The Czech government led by Andrej Babiš is considering raising pensions well beyond the level required by law. Under the current indexation mechanism, pensions should increase by roughly 300 crowns a month on average — but Labour and Social Affairs Minister Aleš Juchelka (ANO) has floated the possibility of an increase of up to 600 crowns.

The difference between the two figures has a direct impact on the state budget. A 300-crown rise would cost the treasury around 10 billion crowns a year, while a 600-crown increase would double that sum — and a higher indexation base would automatically feed into calculations for years to come.

Economists Warn of the Risks

ČSOB analyst Dominik Rusinko called the idea of raising pensions beyond the statutory rate reckless. He noted that the indexation mechanism exists precisely so that pension increases don't become a political bargaining chip every year. "If the government tampers with the system every time the legally calculated result doesn't suit it politically, it undermines trust in the rules and paves the way for further interventions like this in the future," he said. A wiser approach, in his view, would be targeted assistance for those pensioners genuinely struggling with the rising cost of living.

Vít Hradil, an economist at Investika, also sees no economic rationale for an across-the-board pension boost. According to his figures, the ratio of the average pension to the average wage in Czechia remains relatively high, and pensioners' living standards compared to the rest of the population are, if anything, better than they used to be. At the same time, he warned, the balance of the pension system will keep worsening over the coming decades, putting growing pressure on the state budget.

Michal Skořepa, an economist at Česká spořitelna and chairman of the Committee for Budget Forecasts, pointed out that the state budget simply doesn't have enough revenue to cover current spending, including pensions — let alone payments above what the law requires. "Part of our current spending, which should really be covered by today's revenues, has for years been financed through debt — in other words, effectively out of our children's pockets," he stressed.

Opposition Demands Answers

The opposition is also pushing back against the idea of higher-than-mandated indexation. Deputy Speaker of the Chamber of Deputies and ODS's chief economic expert Jan Skopeček said the existing legal mechanism already guarantees that pensioners' real incomes keep pace with inflation. "We are not in some extraordinary, extreme economic situation that would justify indexation above what the law requires," he said, adding that the government should first explain where the money for such an increase would come from.

A One-Off Payment as an Alternative

SPD deputy Jan Hrnčíř said the coalition is also weighing the option of a one-time lump-sum payment to pensioners, which would not become a permanent burden on the budget. Prime Minister Andrej Babiš raised a similar idea last month, saying it could help correct certain "historical injustices" towards pensioners — likely referring to the 2023 change to the extraordinary indexation carried out under Petr Fiala's government. Back then, amid high inflation, the authorities changed the rules so that the actual pension increase ended up lower than what the standard calculation would have produced. In 2024, the Constitutional Court upheld the legality of that amendment but noted that it had affected pensioners' legitimate expectations.

Pension System Surplus Plays into the Coalition's Hands

The government's plans are helped by the current state of the pension account. In the first half of the year, the pension insurance system posted a deficit of just 3.3 billion crowns — the best result in seven years. According to earlier ministry estimates, the system could end the year with a surplus of 15–20 billion crowns. Meanwhile, the state's total spending on pensions this year is set to reach around 740 billion crowns.

The average old-age pension in March stood at 21,793 crowns, with the state paying out 2.34 million such pensions. Some pensioners, however, receive significantly less than this average, and experts say that beyond the growing burden on the budget, the question of how to ensure a decent income for this particular group remains unresolved.

The government must make a final decision on the size of the January indexation no later than September. Whatever it decides will have a direct impact on the state budget: this year's deficit is planned at 310 billion crowns, and next year, according to cabinet members, it could grow by tens of billions more.

Source: novinky.cz