How progressive is the Czech pension security?

Abstract

The aim of the paper is to examine the progressivity of the pension security in the Czech Republic using an intragenerational longitudinal approach. Since there is no available Czech panel data we modelled pseudo-panel data on lifetime earnings of employees on the basis of real crosssectional data. Then the present values of lifetime contributions paid to and lifetime pensions received from the system were derived from the simulated lifetime earnings. The analysis revealed that the Czech pension security redistributes the funds from the higher-income participants to the lower-income ones and from men to women. Furthermore the Gini coeffi cients confi rmed that the scheme reduces income inequality. The results proved that the solidarity principle built in the pension formula prevails over the benefi t principle, which is also present in the formula, when the benefi t component is relatively more favourable for the rich employees because of the shape of the lifetime earnings function.