In today’s article we would like to inform you about the changes in the early retirement regime introduced by the amendment to Act No. 155/1995 Coll., on pension insurance. A number of these changes already apply from autumn 2023. However, another point of this amendment comes into force in October 2024, so here is a brief recapitulation of the entire issue.

Early retirement is often used in an attempt to secure the cost of living due to various difficulties that may arise in the near future before normal retirement. Motivations for early retirement are often job loss and prolonged unemployment with no prospect of getting a new job, health complications or caring for sick relatives. Please note that early retirement is not the same as pre-retirement, which is a product of supplementary pension savings.

The planned pension reform has put early retirement at a disadvantage, particularly in the following areas:

• Early retirement reduction coefficient: An early pensioner has a permanently lower pension than a full pensioner due to a coefficient depending on the length of time remaining until full retirement age. Thus, the earlier he retires early, the more his pension is reduced. This reduction is permanent even after the retirement age for the ordinary old-age pension. An early pensioner is therefore excluded from entitlement to a regular retirement pension. In addition, the amendment to the planned pension reform tightened and unified the reduction coefficients for early retirement from 1 October 2023, making the reduction even higher.
• Early retirement option: From 1 October 2023, the earliest you can apply for an early retirement pension is 3 years before reaching retirement age, previously it was 3-5 years if other conditions were met.
• Valorisation of early retirement pension: From 1 October 2023, pension indexation will exclude the percentage assessments of permanently reduced old-age pensions paid before retirement age (i.e. the so-called “merit” part of the assessment). In other words, this measure has the effect of significantly reducing the indexation of the early retirement pension, since only the basic assessment component of the total early retirement pension is indexed.
• Required period of insurance for early retirement: In addition to the existing changes, the required period of insurance for early retirement will be increased to 40 years from 1 October 2024. The length of time required for normal retirement remains the same at 35 years.

With regard to the issue of earnings while in early retirement, until reaching retirement age, an early retiree may not engage in gainful employment that would establish his or her participation in insurance. Should the pensioner engage in gainful activity from which he would participate in insurance, the Czech Social Security Administration would suspend payment of the pension. In addition, for the period of such gainful activity, an overpayment of pension is reported to the Czech Administration, which the pensioner is obliged to repay or is deducted from his pension or salary. After reaching retirement age, it is possible to engage in any gainful activity, but the pensioner still receives an early pension at a reduced rate, not a regular pension. The only way to fully work during early retirement is to apply for interruption of early retirement. However, you need to reapply for an early retirement pension when you leave your job. The pension percentage is increased for the time worked, but the interruption itself does not result in a change to a regular pension, it will still be an early pension.

The reform of early retirement conditions thus displaces one of the tools to support people in difficult life situations. On the other hand, the motive of the state is understandable, as the number of early retirements has been increasing significantly, partly in view of the favourable conditions in 2022. The legislators aim to keep the population economically active for as long as possible, which is why early retirement should be relegated to the category of last resort.