In the end of 2013, the balance of the account designated for the retirement system deficit remediation stood at CZK 22,600 million

PRESS RELEASE on Audit No. 14/08 – January 19, 2015

The Supreme Audit Office (SAO) scrutinized the retirement insurance payments within the period from 2009 to 2013. At the Ministry of Labour, the Ministry of Finance, the Ministry of Defence, and the Ministry of Interior, auditors scrutinized whether retirement insurance deductions had been collected in the appropriate amounts, verified the data related to retirement payments, and also scrutinized the funds on the special reserve account that is determined for the retirement system reformation.

By the end of 2013, nearly 3 million people were receiving retirement payments. The highest increase was shown in the old-age pension group. According to the Ministry of Labour there were 2.3 million of senior citizens receiving the payments by the end of 2013. The number has risen by one third since 1996.

The Ministry of Labour administers 98 % of retirement payments. The system’s outcomes have been annually increasing since mid-1990s by 5 % – because of rising numbers of the old-aged as well as because of regular valorisations of pension payments. In spite of increased income payments, the system has been showing a deficit over a long-term period and the deficit was heightening by 12 % on average each year in the years 2009–2013. A balance of the system was not ensured from other sources – CZK 28,700 million in 2012 and CZK 25,800 million in 2013 – which originated from the profits of the privatization of state enterprises and from 7 % of the VAT revenues, which fall into the state budget. Such a situation is unsustainable in the long-term.

In 1995, a special account was established in order to accumulate the surplus of the retirement insurance collection. The funds from the account were intended to be used when the retirement system incoming payments do not cover the outcomes, and since 2008, the funds have been used to finance the retirement system reformation. In the end of 2013, the balance of the account stood at CZK 22,600 million.

The SAO concluded that the account balance could have been twice the amount: In accordance with the law, the Ministry of Finance takes into this account the administration expense account management fees, which made from CZK 5,000 million to CZK 7,000 million in the period from 2009 to 2013. The SAO notes that such a procedure may distort the overall summary of the retirement system’s payments. Had the Ministry transferred the whole surplus to the special account and did not deduct the account management fees in period 2004–2008, when the retirement system was surplus, the special account balance could be higher by CZK 22,500 million. But the fact is that funds on the special account are not sufficient when we consider the deficit of the retirement system in the recent years.

Communication Department
Supreme Audit Office

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