Page 30 - IDEA Study 7 2015 Working Beyond Pensionable Age

5. Conclusion The stability of the pay as you go pension system in the Czech Republic depends on three key characteristics, one of which is the ratio of workers to pensioners. Low fertility and population aging have forced the ratio of workers to pensioners down. Increasing the statutory retirement age pushes that ratio up again, because individuals are used to working until they reach the statutory retirement age. However, changes in the retirement age do not provide incentives for the elderly to continue working after retirement age. In order to incentivize the elderly to remain economically active after retirement age, it is necessary to use institutional incentives, which should offset pensioners' temptation to leave labour market caused by unconditional income (old age pension). The evidence shows that the Czech Republic has a pensioner employment rate below the EU 28 average. The majority of elderly Czechs leave the labour market and retire around the statutory retirement age, and at the same time 70–80 percent of retired individuals report that they left the labour market and retired voluntarily. Evidence of the evolution of health and employment problems with age also indicates that the majority of Czechs retire voluntarily. Our quantification of the institutional incentives to work, using several specifications of participation tax rates, has shown that the tax, benefit and pension systems do not currently create greater incentives for old age pensioners to work than prime age individuals. Furthermore, in 2013 old age pensioners were in fact significantly disincentivized to work in comparison to prime age individuals, because they could not claim taxpayer tax credit. In other words, institutional incentives for the elderly to work in the Czech Republic cannot offset pensioners' temptation to leave labour market caused by guaranteed unconditional old age pension. Introducing such institutional incentives would motivate more of the elderly to work. An international comparison shows that it is possible to increase the employment rate among old age pensioners by more than 20 percentage points. According to our microsimulation model, an increase in employment among pensioners not only improves their own financial situation and that of their families, but could also contribute to higher public revenues through direct taxation. 28