H55 - Social Security and Public PensionsReturn

The burning issue within the pension system in the Czech Republic is the level of coverage of self-employed persons. According to the data, they constantly report their income near the level of minimal basis during their lifetime. We estimate the replacement rates, lifetime benefit and lifetime contribution index using updated unique dataset of Assessment Base for Pension Insurance to shed the light on this problem. We can sum up that the income distribution of self-employed persons is highly concentrated, with the peak at the profit level which corresponds with the minimal base for pension contribution. Due to the high degree of the Czech pension system progressivity, the general result is that the self-employed persons are better off in comparisons with the employees if we concentrate on relative measures, but worst off if we concentrate on nominal measures. The only way how to solve this puzzle may be the effective information campaign which will reveal the future level of pensions /replacement rates/ to encourage the self-employed persons to participate in other, broadly defined, pillars of pension system.

This paper proposes fundamental changes in the Czech pension system, which would significantly help with the resolution of its problems with comprehensibility and long-term financial sustainability. Firstly, the paper introduces the basic characteristics of our pension system to the reader, including the procedure for calculating the old-age pension. Then, it explains why it is necessary to perform fundamental and particular changes in the pension system (i.e. to carry out a pension reform). Final and main part of the paper presents the proposed direction, which the reform of our pension system should take, and in general proposes measures that would make our pension system simple, comprehensible and financially sustainable in the future.

The article identifies characteristics of Czech individuals, which influence participation rate and contribution size in the government-subsidized supplementary retirement savings scheme, the 3rd pillar of the pension system. Using the representative sample of individuals, I show that men are by 8 percentage points more likely to participate in the 3rd pillar than women, but their average contributions are of similar size. Higher participation rates as well as contributions exhibit employees with higher incomes, older people and those working longer hours. More than a third (36%) of participants contributed 500 Czech crowns monthly to the 3rd pillar, which was identical with a ceiling, valid until the end of 2012, for a government subsidy of 0.3 crowns per each crown contributed. These results suggest that a large share of population has a larger propensity for long-term saving than they actually save.