The Czech pension system faces significant demographic pressure in the coming decades. The number of people of retirement age will rise, whilst the number of those funding the system will fall. Even following recent reforms, long-term projections therefore do not foresee the pension system achieving a balanced budget.
Furthermore, our analysis of revenue and expenditure trends for the period 2013–2025 reveals a significant asymmetry: in the long term, the revenue side is strongly linked to wage trends, whilst no similar long-term relationship with the main determinants under consideration has been confirmed for expenditure. Relying solely on economic growth or higher contribution collection is therefore insufficient for the long-term stabilization of the system.
A combination of changes in the labor market and adjustments to the pension system itself will be required. However, the Czech political elites are finding it difficult to address these issues.
The Czech pension system does not currently appear to be on the brink of imminent collapse. Yet this very fact may be misleading in the debate about its future. The main problem lies in the coming decades. The Czech population is ageing, whilst the number of births is falling sharply. In 2025, only 77,600 babies were born, and the total fertility rate fell to 1.28 babies per woman. At the same time, the number of older people is rising. According to projections by the Czech Statistical Office, at the start of 2023 there were approximately 126 people aged 65 and over for every 100 children; by around 2040, this figure is expected to exceed 200.
For a pay-as-you-go pension system, the main implication of this trend is particularly significant. Today’s pensions are not funded from a previously accumulated fund, but predominantly from contributions made by the current workforce. Population ageing therefore affects both sides of the system simultaneously. The number of pension recipients is rising, whilst the number of people whose work finances these pensions is relatively declining. The falling birth rate further exacerbates this problem, albeit with a significant time lag: today’s low birth rate will only be fully reflected in the system’s revenue when these generations enter the labor market.
The Deficits Are Not Gone
Long-term projections therefore remain unfavorable even following the changes to the pension system adopted in recent years. The Ministry of Finance estimates that the reforms implemented have improved the future balance of the pension account by approximately 1.5% GDP. This is a significant step, but not a definitive solution. The Ministry of Labor and Social Affairs’ projections still anticipate a deficit of around 2% GDP and expenditure on old-age pensions of around 10% GDP in the 2050s and 2060s. The slightly more favorable projections by the Czech Fiscal Council anticipate a deficit of approximately 1.5% GDP and pension expenditure of around 9 % GDP during the period of greatest demographic pressure.
The difference between a deficit of 1.5 and 2% GDP is, of course, not negligible, but the main conclusion of both projections is the same. Without further changes, the pension account will face a significant structural deficit during the period of peak population ageing. This is not a short-term deficit caused by an economic recession or a one-off expenditure.
The significance of the individual parameters is also clearly illustrated by estimates of the impact of recent changes. According to calculations by the Czech Fiscal Council, raising the retirement age to 67 could improve the long-term balance by up to 2.1% GDP. The adjustment to indexation, which reduced the proportion of real wage growth taken into account, brings further improvement of 0.5% GDP. This also illustrates an unfortunate feature of pension reforms: measures that have a truly significant impact on long-term sustainability tend to be the most politically sensitive.
Revenue and Expenditure Do Not Move the Same Way
In addition to the projections themselves, it is also important to understand what actually influences the revenue and expenditure sides of the pension system. An analysis of quarterly data for the period 2013–2025 reveals a relatively significant difference between the two sides of the account.
On the revenue side, wages, employment and the number of people paying contributions are naturally important. Statistical analysis, however, identifies nominal wages as the strongest factor. A long-term relationship has also been confirmed between the trend in pension insurance revenue and the trend in wages. In other words, if wages rise over the long term, the volume of pension contributions collected also gradually increases in line with them.
On the expenditure side, the situation is more complex. Expenditure is naturally influenced by the number of pensioners and the rules governing indexation – trends in prices and real wages. However, the analyzed data did not reveal a stable long-term relationship between total expenditure and these key variables similar to that observed for revenue.
Our model therefore primarily captures their short-term dynamics. This result does not imply that demographics, inflation or wages have no long-term impact on pension expenditure. Rather, it shows that the expenditure side is the result of a more complex combination of demographic trends, statutory indexation rules and other parameters.
From an economic policy perspective, this implies, above all, the need to avoid focusing on a single measure. According to the OECD study from 2020, there is only limited scope for further increases in insurance contribution rates; therefore, greater emphasis will need to be placed on promoting employment – particularly amongst older workers (55+) – extending working lives and boosting productivity.
At the same time, however, the labor market alone will not resolve long-term demographic pressures, so it will also be necessary to adjust the parameters of the pension system. Yet it is precisely the changes with the greatest fiscal impact – such as raising the retirement age – that are also politically sensitive, which increases the risk of further delays in implementing the necessary reforms.