Czech state pension fund to see big surpluses in 2018-2019

The state pension fund will see big surpluses in both 2018 and 2019, FinMin Alena Schillerova told the state TV channel on Sunday (Sep 16). The state pension fund is projected to report a surplus at CZK25.2bn in 2018 and CZK22.4bn in 2019, according to finance ministry projections. The main reason is much higher employment levels, as well as growing wages, which have boosted proceeds from social security contributions. This is a continuation of the improvement seen over the past few years, as the state pension fund reported deficits at above CZK40bn until 2014, after which deficits started narrowing down quickly. The decrease in surplus in 2019 is mostly due to the measures taken by the current government, which decided to increase pensions beyond what their usual indexation would lead to.

Schillerova also argued that the favorable state of the state pension fund didn’t suggest a reform was needed. This is in direct contradiction with both the CSSD, which has pension reform as one of its main policy goals, as well as with right-leaning opposition parties, who claim the current surpluses are unsustainable in the long run. We tend to agree with the latter, as the current surplus is mostly cyclical, reflecting the very strong growth seen by the Czech economy. As soon as economic growth slows down or a recession returns, so will deficits. Besides, there is no change in demographic trends, as the population is aging and there will be growing issues as of 2030 onwards.

However, Schillerova’s horizon clearly doesn’t spread that far, indicating she would rather not bother with a reform that is going to be costly and very possibly unpopular. Besides, the CSSD is pushing pension costs higher, so its measures will lead to a faster return to deficit, given ambitions for a much higher pension level.

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