I believe that everyone who follows the debate on the pension system in the Czech Republic knows that without fundamental reform its future is not sustainable. The demographic curve speaks clearly. The population is ageing, the number of economically active people is declining and the amount of pensions paid out is increasing. Politicians are searching in vain for the courage to make structural changes. Parametric modifications delay the imaginary hitting of the wall, but it will be all the harder in the future. The result of such passivity? The loss of confidence of citizens that they will receive enough money from the state in the future to live in dignity in retirement. 

This growing scepticism affects their behaviour. Instead of relying on state-run systems, they are looking for ways to reduce their participation in their financing. In the current legal framework, this may mean, for example, a preference for self-employment over employment or other forms of optimisation of the tax and levy burden.  

In short, people are starting to accept higher risks – less social protection, lower sickness benefits or uncertainty in the event of an accident – knowing that in the short term they will receive higher income that will allow them not only to better cover their current needs, but also to invest on their own and build a financial cushion for old age.  

This brings us to the issues that the state should address. Why not allow people who no longer believe in the system to buy themselves out of it partially or completely? What would such redemption entail? How much would it cost and what conditions would it have? 

Guarantee of social reconciliation 

Anyone opting out would still have to contribute a minimum amount to provide basic solidarity – for example, to cover the care of those who cannot look after themselves without help. This minimum contribution would ensure social peace and prevent the collapse of the basic functions of the state. On the other hand, people who decide to leave the system would take full responsibility for their future financial security. 

This would mean that they would receive no support from the state in retirement or in crisis situations (such as long-term illness) and would have to rely solely on their savings and their own financial strategies.

The introduction of such a system would, of course, mean a short-term shortfall in state budget revenues. However, the state would be able to bridge that gap. Economic rebalancing could happen relatively soon due to significant spending cuts. In the long run, the savings on pensions and benefits for those who choose to rely on themselves could then shift the system from a rut leading to a wall to a sustainable path. 

Why would that work? 

1. Restoring trust in the system: People who today feel they are paying high levies into a system from which they gain nothing would finally have a choice. Instead of repressive measures that force everyone to stay in the system, the state would show that it is able to adapt to changing realities and the needs of citizens. 
2. Structural reform: Instead of minor parametric changes, it would be a real change in the rules of the game, which would allow the system to balance better in the long run. 
3. Motivation to be responsible: People who choose to opt-out would have to actively plan for their financial future, which could lead to greater financial literacy and responsibility, capital market development and the emergence of new services and products. 

Is this realistic? 

For such a system to work, the state would have to ensure clear and transparent conditions. People would need to know exactly what they are getting for their contributions and what they are losing if they opt out of the system. The key question would be whether an opt-out would mean a loss of access to all state social services and whether a similar model would work in public health insurance. 

Of course, no solution is without risks and it is not ideal for everyone. Not all citizens are prepared to take full responsibility for their financial security. In addition, issues such as protecting those who opt-out but later fail to make their own provision would need to be addressed. 

Nevertheless, the current system is not sustainable in the long term. It is not possible to regain the missing trust of the people through repressive measures. On the contrary, the ability to choose and adapt to changing realities could be the key to restoring trust in the system. 

The text was originally published as a commentary for the daily Hospodářské noviny.