January 1 saw the implementation of changes to the Czech Republic's social security system that raise the retirement age, increase the years of service required for an old-age pension, put up the annual earnings contribution ceiling, and adjust the definition of disability. The government is introducing the changes in order to stabilize the country's state-run pay-as-you-go system.
The Czech Republic's social security system covers all employed and self-employed persons. It is financed by employee contributions of 6.5% of monthly covered earnings (28% for the self-employed) plus employer contributions of 21.5% of monthly payroll. Several important changes were introduced at the beginning of 2010.

Higher retirement age
The retirement age will rise gradually to 65 by 2028 for men and for women without children. Women with children will be able to retire from ages 62 to 65, depending on the number of children. Currently, the retirement age is 62 and 2 months for men, and from 57 to 61 for women, based on the number of children. (Under a previous law, the retirement age was increasing gradually to 63 for men and for women without children, and from 59 to 62 for women with children, depending on the number of children.)

More years of service required
The number of years of covered employment required for a retirement pension will rise gradually from 25 to 35 years by 2019. In addition, starting in 2011, individuals who are five years older than the normal retirement age will be able to retire with 17 years of contributions (increasing by one year each year to a total of 20 years of contributions by 2014). Currently, men and women aged 65 or older can retire if they have at least 15 years of covered employment.

Increase in maximum annual earnings for contributions
The maximum annual earnings for contribution calculation purposes for employees and employers will increase from 48 to 72 times the average national monthly wage. For 2010, this ceiling is set at CZK 1,707,048 (USD 93,342), based on an average national monthly wage of CZK 23,709 (USD 1,296).

New definitions of disability
The old disability classification consisted of partial disability (33-65% loss of earnings capacity) and total disability (66% or higher). This will be replaced by a new system based on three levels of disability:
- 1st degree (35-49%)
- 2nd degree (50-69%)
- 3rd degree (70% or higher)

To qualify for disability benefits under the new law, individuals aged 38 or older must have been in covered employment for at least ten of the last 20 years before the onset of disability. Fewer years are required for individuals below age 38. (Previously, five years of covered employment were required for individuals aged 29 or older, with fewer years required if under age 29).
There is no doubt that companies operating in the Czech Republic will be affected by these important changes. Please contact Kooperativa, our Network Partner in the Czech Republic, to discuss the implications for your organisation.

For more information
please visit www.koop.cz