Pension indexation 2024

Pension indexation in 2024 was carried out in two steps:

1. Valorisation from 1. January 2024

• Pensions granted before 2024 increased by 3.6%. This indexation percentage was determined according to a formula taking into account the annual growth in consumer prices for pensioners’ households for the first half of 2023, which amounted to 14.5%.
• Pensions granted in 2024 increased by 14.5%. This indexation percentage corresponds to the year-on-year increase in consumer prices for pensioner households for the first half of 2023.

2. Extraordinary increase in pensions from 1. July 2024

• The government also approved an extraordinary increase in pensions by 5.22% effective from 1. July 2024. This extraordinary increase applies to all pensioners, regardless of when they were awarded their pension.

What is pension indexation

Pension indexation is the process of periodically adjusting pension benefits to maintain their real value over time. Pensions are indexed in response to increases in the prices of goods and services, so that pensioners retain at least some of the purchasing power they had during their working lives.

How pensions are indexed in Slovakia

• The Social Security Act provides for an indexation formula that takes into account consumer price increases for retiree households.
• Valorisation is carried out twice a year, usually 1. January and 1. July.
• The amount of the indexation shall be calculated as the sum of the average inflation for the previous year and the one-off indexation.
• The one-off indexation is determined on a year-by-year basis and may take into account various factors such as economic developments, the state of public finances and demographic trends.

Implications of pension indexation:

• Pension indexation has a positive impact on the living standards of pensioners, as it allows them to cover the rising cost of living.
• However, the amount of indexation cannot always fully compensate for inflation, so the real value of pensions may decline slightly over time.
• Pension valorisation is an important social policy instrument by which the state ensures a dignified life for the elderly.

In addition to indexation, there are other mechanisms that affect the level of pensions, such as the duration of pension insurance and the level of the assessment bases.

Why pensions are indexed

Pensions are indexed for two main reasons:

1. Preserving the fair value of pensions:

The aim of indexation is to compensate for rising prices of goods and services so that pensioners retain at least some of the purchasing power they had during their working lives. Without indexation, pensions would lose their value and pensioners would have to cope with a declining standard of living.

2. Fairness to workers:

Pension indexation is also important from the point of view of fairness to workers. If pensions were not valorised, there would be a disproportionate gap between the living standards of workers and pensioners. Workers would have to finance the rising cost of living, while pensioners would have a stagnant income.

Pension valorisation is therefore an important social policy instrument by which the state ensures a dignified life for the elderly and at the same time maintains fairness in society.

In addition to these two main reasons, there are other arguments for pension indexation

• Supporting the domestic economy: indexed pensions increase pensioners’ incomes, stimulating consumption and supporting the domestic economy.
• Reducing the risk of poverty: pension indexation helps to reduce the risk of poverty among older people and ensure decent living conditions.
• Demographic developments: the ageing of the population is increasing the number of pensioners and therefore pension indexation is important to maintain the stability of the pension system.

However, it is important to note that pension indexation is not seamless. It sometimes happens that the pace of indexation does not keep pace with price rises, and therefore the real value of pensions may fall slightly. In addition, the financing of indexation is a burden on the state budget.

Pension indexation is therefore a complex issue with various aspects to be taken into account. Nevertheless, it is important that pensions are valorised so that pensioners can maintain a dignified life and a fair share of society’s wealth.

Who decides on the indexation of pensions

In Slovakia, a number of entities decide on pension indexation, but the final responsibility lies with the Government of the Slovak Republic.

The valorisation process is as follows:

• The Ministry of Labour, Social Affairs and Family of the Slovak Republic collects data for valorisation, such as data on the growth of prices of goods and services for pensioners’ households.
• The Social Insurance Institution of the Slovak Republic calculates the valorisation proposal on the basis of a statutory formula.
• The proposal for valorisation is submitted for comments to the Social Council of the Slovak Republic, which is composed of representatives of employers, employees and the state.
• Based on the comments of the Social Council of the Slovak Republic, the Government of the Slovak Republic will approve the valorisation of pensions in the form of a regulation.
• The Slovak Government Decree on the valorisation of pensions shall be publicly announced in the Collection of Laws of the Slovak Republic and shall enter into force as of 1. January or 1. July of the relevant year.
• In addition to the above-mentioned entities, other institutions, such as the National Bank of Slovakia and the Institute of Economic and Social Analyses, may also be involved in the process of pension indexation. These institutions provide the Government of the Slovak Republic and the Social Council of the Slovak Republic with expert opinions on the proposed valorisation.

It is important to note that pension indexation is a political process that takes into account various factors such as the economic situation of the country, the fiscal capacity of the state and the social demands of pensioners.

The aim of indexation is to strike a fair balance between preserving the real value of pensions and the sustainability of the pension system.

Frequently asked questions about valorisation

How much will pensions increase in 2024?

Overall, pensions will increase by 18.1% in 2024. This percentage takes into account inflation and average wage growth from the previous year.

When will the increase in pensions take effect?

Pension increases will take effect from January 2024. The new pension amount will be applied automatically in the monthly pension payments.

Do I have to apply for valorisation?

No, there is no need to apply for valorisation. Pension increases will be applied automatically to all recipients of pension benefits.

What pensions will be indexed?

All types of pension benefits will be valorised, including old-age pensions, early retirement pensions, invalidity pensions, widow’s pensions, widower’s pensions and orphan’s pensions.

How is pension indexation calculated?

Pension indexation is calculated on the basis of a percentage that is the average of inflation and average wage growth in the previous year.

How do I find out my new pension amount?

The Social Insurance Institution sends information letters to all recipients of pension benefits with details of the pension increase and the specific amount of the pension from January 2024. You can also contact a branch of the Social Insurance Institution or visit its website.

Will the valorisation also apply to the minimum pension?

Yes, the indexation also applies to the minimum pension. The minimum pension will also be increased according to a fixed indexation percentage, ensuring that minimum pension recipients will also have their benefits increased.

How will valorisation affect invalidity pensions?

Invalidity pensions will be indexed at the same percentage as other pensions. The increase will be reflected in monthly payments from January 2024.

Can the indexation still change during 2024?

The indexation percentage is set for the full year 2024 and usually does not change during the year. The exception would be unexpected legislative changes that would have to be approved by the government or parliament.

In conclusion

The pension indexation for 2024 brings a significant increase to take account of the current economic situation and the rising cost of living. This increase is important to maintain pensioners’ living standards and ensure their financial stability. Any further information and details will be regularly updated and provided by the Social Insurance Institution.