Pension insurance
Contents:
Basic pension insurance, together with health insurance, forms part of social security in the narrower sense.
System description
The Czech pension system is based on compulsory basic pension insurance pursuant to Act No 155/1995 Coll., on pension insurance, as amended. The supplementary pension savings scheme is governed by Act No 427/2011 Coll., which in 2013 replaced supplementary pension insurance with a state contribution pursuant to Act No 42/1994 Coll. Voluntary supplementary schemes also include the products of commercial insurance companies, especially life insurance. The employers’ pensions systems that are relatively common in other EU Member States do not exist in the Czech Republic.
The issue of supplementary pension insurance schemes is not described in more detail on the website of the Ministry of Labour and Social Affairs, as it falls within the jurisdiction of the Ministry of Finance.
Basic compulsory pension insurance is defined-benefit (DB) and continuously funded (PAYGO); it is universal and provides for all economically active persons. The legislation is uniform for all insured persons; there are no special sectoral or professional schemes, etc. Only in organisational, administrative and financial aspects (retirement annuities) do certain deviations apply to the so-called ‘forces’ (e.g. soldiers, firefighters, police officers).
More than 99% of the population over the age limit for entitlement to an old-age pension receives a pension from the basic pension insurance scheme.
Act No 155/1995 on Pension Insurance entered into force on 1 January 1996. However, a number of legislative amendments have been adopted since then, most of which are aimed at adjusting the parameters to ensure the financial sustainability of the pensions system while maintaining adequate benefit levels.
Participation in a pension insurance scheme
In the area of pension insurance, the period of participation in the insurance scheme is of fundamental importance – firstly because it is always one of the conditions for entitlement to a pension, and secondly because the total length of the acquired period of participation in the insurance affects the amount of the pension percentage.
Participation in a pension insurance scheme is mandatory for the following groups of persons:
In the field of social security, as „employees“ are collectively referred to not only as persons in various employment relations under the Labour Code (an employment contract, work activity agreement, work performance agreement), but also as, for example, members of the armed forces, civil servants according to the Civil Service Act, members of a cooperative, so-called released members of councils, partners and executives of limited liability companies, procurators, liquidators, members of the collective bodies of legal entities, and others.
Persons who perform activities in these insurance relationships must have pension insurance if they perform this activity to the extent that it gives rise to participation in a sickness insurance scheme.
The condition for the period of participation in the insurance scheme to be considered as a period of insurance is that an insurance premium was paid for it in Czechia. The condition of payment of the insurance premium is considered to be fulfilled even if the employer did not deduct the insurance premium, even if they were obliged to do so.
More details on employee participation in pension insurance scheme can be found on the website of the Czech Social Security Administration.
Specific rules apply to the participation of self-employed persons in insurance schemes. This participation is not tied to participation in a health insurance scheme (this is only voluntary for the self-employed), but depends on the nature of the self-employment (main, secondary) and, in the case of secondary self-employment, on the amount of income (or tax base) from this activity.
A self-employed person is considered to be a person who is self-employed or is involved with the activities of a self-employed person if, according to the Income Tax Act, their income can be divided into income realised by performing this activity and expenses incurred in realising, ensuring and maintaining it; has completed compulsory school attendance; and is at least 15 years of age.
A self-employed person is considered to be in primary self-employment in any period in which a self-employed person is not considered to be in secondary self-employment. A person in primary self-employment must always participate in a pension insurance scheme; if their income is low or negative, they pay insurance premiums based on at least the minimum assessment base, the value of which is set by law at ¼ of the national average wage per month.
A self-employed person is considered to be in secondary self-employment, if the circumstances stipulated by law were prevalent at the time – for example, if the self-employed person was employed at the same time or was a recipient of an old-age or invalidity pension. A person in secondary self-employment must only participate in a pension insurance scheme if they obtain such a level of income from this activity that their tax base (total income minus expenses) for a calendar year reaches at least the so-called „relevant amount“ (2.4 times the general average wage); if their income does not reach this level, they need not participate in a pension insurance scheme, but may apply to participate in an insurance scheme for the self-employed on a voluntary basis.
More details on the participation of the self-employed can be found on the website of the Czech Social Security Administration.
In the above cases, participation in a pension insurance scheme is associated with the obligation to pay social security contributions and contributions to the state employment policy.