Top court ruling fuels debate on pension reform

Experts are concerned that a recent landmark ruling by the Czech Constitutional Court on the pension system might lead to excessive government expenditures. The verdict gives politicians until September 2011 to change the way pensions are calculated, but could speed up a general overhaul of the contribution-based system.

Illustrative photoIllustrative photo Judge Karel Sochor retired four years ago with a nice monthly salary of some 70,000 crowns, or more than 3,600 dollars. But he didn’t like the pension he received. The former justice did not think it was fair after years of social security payments corresponding to his high salary, he should be getting a monthly pension of only 12,000 crowns. The court upheld Mr Sochor’s complaint, ruling in effect that the Czech pension system discriminates against people with high incomes.

But the former judge’s victory could turn into a nightmare for Czech politicians. The court estimated that between 5,000 and 8,000 thousand Czechs are affected by the unfair system. But most experts fear their number is much higher, which could result in much higher government expenditures.

The Constitutional Court gave politicians until September 2011 to change the way pensions are calculated. The Czech Finance Ministry says they will discuss ways of how to implement the court ruling.

But the verdict puts further pressure on reforming the system, which is set for a 35 billion-crown loss this year. Politicians agree a reform of the system is necessary, and have been talking about it for some time. But some, including Social Democrat and former European Commissioner for Employment, Social Affairs and Equal Opportunities Vladimír Špidla, believe there is no rush.

“I agree that reforms are necessary. But I don’t think we have to implement them so fast; the Czech Republic has always been able to sustain its population. The pension reform will not happen in the next electoral term; in that space of time we can, at best, decide about its form. But its implementation is an issue for the next generation because if you attempt to execute it hastily, the expenses would just be too high.”

For their part, the Civic Democrats hope the court ruling could lead to a general overhaul of the system. An inter-departmental commission was set up again in January to design possible changes. Given the protracted election campaign that has been going on for nearly a year, its head Vladimír Bezděk says he has some questions to ask politicians after May’s elections.

“What degree of solidarity among the various income groups they would like to set in the new pension system. Also, how they want to diversify the entire system, because for the last 20 years, the system has heavily relied on the state for finances - around 95 percent. I think this is unsustainable in the long run, and extremely dangerous for both the state and its citizens.”

Mr Bezděk also believes political parties should engage Czechs in a serious public debate about these reforms, and start telling today’s 30- and 40-year-olds the truth, however inconvenient it might be.