Acta academica karviniensia 2014, 14(3):67-78 | DOI: 10.25142/aak.2014.049

IMPACT OF TEMPORARY CHANGES IN PENSION INDEXATION

Petr Janský

Institut ekonomických studií, Fakulta sociálních věd, Univerzita Karlova v Praze, Opletalova 26, Praha 1, 110 00, Česká republika; CERGE-EI, společné pracoviště Centra pro ekonomický výzkum a postgraduální vzdělání Univerzity Karlovy a Národohospodářského ústavu AVČR, v. v. i., Email:jansky.peta@gmail.com

Temporary rules for indexation of old-age public pensions in the Czech Republic were introduced for the period between 2013 and 2015. The pensions are now indexed only according to the sum of a third of the wage growth and a third of price inflation. This is by two thirds of price inflation lower than in 2012. This article empirically evaluates impact of this change on expected values of pensions and compares it with seven alternative proposals. The analysis estimates that pensions will be by 5% lower by 2015 in comparison to the earlier rules for indexation. The implemented change is the third lowest indexation out of the eight evaluated proposals. One of the main findings is that temporary changes can have an important impact beyond the short run. The temporary lower growth of pensions during the three years is naturally reflected in lower expected values of pensions and in lower public expenditures in the subsequent years.

Keywords: indexation, impact evaluation, pension, pension indexation, Czech Republic

JEL classification: H55, H75, J18, J32

Received: October 24, 2013; Accepted: September 23, 2014; Published: September 30, 2014  Show citation