CZECH REPUBLIC - The Czech government has decided to raise the old-age pensions by 412 crowns (13 euros) per month on average as of January 2005, the Czech Labour Ministry said.

The average pension in the Czech Republic will thus reach 7,687 crowns next year, and will account for 39 percent of the average wage next year.

Originally, the Labour Ministry wanted pensions to be raised by 500 to 600 crowns. Trade unions demanded a 555-crown increase.

Higher pensions will require next year some 13 billion crowns more from the state budget compared with this year. Pensions will account for 27% of next year's budget expenditure.

Czech old-age pensions rely heavily on the pay-as-you-go system. Private pension funds entered the market ten years ago. Currently, some 28% of inhabitants of the Czech Republic with a population of 10.2 million thus had a private insurance.

The Czech government plans to change the current pension system. An expert group consisting of all parliament parties and headed by Vladimir Bezdek from the Czech National Bank (CNB) started to examine the reform's possible versions earlier this month.

The government believes the reform could be launched within two years if political consensus will be found.

Without reform, pensions would require 15% of GDP in 2050. The country's public debt would balloon from the current 40% of GDP to 280% in 2050 and 1000% in 2075 should the pension system not be changed.

The Labour Ministry estimates that full transition from the pay-as-you-go system to a capital-financed system would cost 2.5 times more than is the annual GDP.

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