Allianz: Czech pension system world’s 12th most stable

02-06-2020

According to a new study by Allianz, based on data from 70 countries, the Czech pension system is relatively stable compared to others. In the first year of the Global Pension Report, the German financial services firm puts the Czech Republic in twelfth place overall.

Photo: Alexas_Fotos, Pixabay / CC0Photo: Alexas_Fotos, Pixabay / CC0 The ranking is based on a new indicator that Allianz began monitoring this year. Its so-called Allianz Pension Indicator (API) consists of three components. Firstly, it takes into account demographic and budgetary assumptions, secondly, the sustainability of the system and thirdly, its adequacy.

The Allianz Global Pension Report takes the pulse of pension systems around the world using the API. The index follows a simple logic: It starts the analysis with the demographic and fiscal prerequisites and then continues to examine pension systems along their two decisive dimensions: sustainability and adequacy.

Photo: Gundula Vogel, Pixabay / CC0Photo: Gundula Vogel, Pixabay / CC0 Hence, it is based on three sub-indices and takes 30 parameters into account, which are rated on a scale of 1 to 7, with 1 being the best grade. By adding up all weighted subtotals, the API assigns each of the analysed 70 countries a grade between 1 and 7, thus providing a comprehensive view of the respective pension system.

“The dramatic shift in demographics is best characterized by the increase in the global old-age dependency ratio: until 2050, it will grow by a whopping 77 percent to 25 percent, i.e., faster than in the last 70 years since 1950,” writes Allianz.

"In many emerging economies, the ratio is going to more than double within the next three decades, that is, in less than half of the time this development took in Europe and Northern America.”

In first pillar of the API, which reflects the baseline of specific countries in terms of demographic situation and public finances, Allianz gives the Czech Republic an overall mark of 4.2. What the Czech Republic lacks in taking into account demographic factors is, among other things, job opportunities for older employees.

Michaela Grimm, photo: Archive of AllianzMichaela Grimm, photo: Archive of Allianz As for the second component, sustainability of the system, it is important whether the retirement age will increase. The Czech Republic plans to increase it, and thus received a grade of 2.9, significantly better than the global average.

The third component is the adequacy of the system, i.e. the ratio of the number of employees to the number of pensioners, maintaining the standard of living of pensioners, and the existence of pension funds and other sources of income of the elderly population.

Here, the report criticizes the Czech Republic, among other things, for the absence of retirement pensions for individual professions. In this regard, Allianz gave the Czech Republic a mark of 3.2.

“One of the legacies of the current [coronavirus] crisis will certainly be the fact that we will have to redouble our efforts to reform pension systems. Those who still had room for manoeuvre have just lost it,” warns one of the study's authors, senior economist Michaela Grimm.

According to the Allianz ranking, the Top Ten comprise Sweden, Belgium, Denmark, New Zealand, the USA, Australia, the Netherlands, Norway, Bulgaria, and Canada.

02-06-2020