Stricter rules for early retirement

The Slovak government is to limit the employment of people who have taken early retirement. At present they can work while receiving their old-age pensions. However, this measure was suggested by the Ministry of Labour, Social Affairs and Family to help combat the unemployment rate, which has risen above 14%, despite a growing economy. The changes mean people who have retired early will be able to work only under specific agreements, not with standard employment contracts.

Worsening employment situation

The Slovak economy appears to be recovering from the economic downturn. A third-quarter forecast (in Slovakian, 1.1Mb PDF) by the Slovak National Bank (NBS) in September 2010 said that gross domestic product (GDP) would increase by 4.3% in 2010. According to the Slovak Statistical Office (ŠÚ SR), industrial production in Slovakia increased by 22.6% and electricity and gas supply by 13.9%, between 1 January and 31 August 2010, compared to the same period in 2009. However, employment in several sectors in the economy decreased in the same period, by:

  • 6.5% in industry;
  • 14.6% in wholesale;
  • 12.5% in information and communication;
  • 9.2% in hotels and restaurants.

This suggests that, during the economic downturn, employers learned to achieve a similar performance to that which they had before the crisis, but with fewer employees. This was accompanied by a growing unemployment rate which reached 14.4% in the second quarter of 2010.

Government looks for options to increase employment

The new Slovak government has made the reduction of unemployment one of its priorities. The Ministry of Labour, Social Affairs and Family (MPSVR SR) suggested the stricter rules for early retirement as one way of doing this, as well as liberalising the Labour Code. Limitations on early retirement are also meant to decrease the burden on the Social Insurance Agency (SP), which is suffering from a long-term deficit in funds meant to pay old-age pensions. At present, employees can apply for early retirement up to two years before their actual retirement age, on condition that they have been paying contributions to SP for at least 15 years and that the level of their old-age pension amounts to at least 1.2 times the subsistence minimum. In August 2010, more than 23,000 people received old-age pensions through the early retirement scheme and the average level of pensions was about €366 a month.

Proposed changes in early retirement scheme

The proposed changes to the early retirement rules come under Act No. 461/2003 on the social insurance system. At the moment, any employee who decides to retire earlier can continue his or her regular employment. If they do so, the standard level of their old-age pension is decreased on a calculation of the difference between their age and the actual retirement age of 62 years. The calculation is based on a reduction of 0.5% per month. According to the new proposals, an employee taking early retirement cannot keep working under a standard employment contract, and has to choose between continuing to work or taking their pension. Those deciding to work would be governed by a non-standard employment contract, such as the Work Performance Agreement or Agreement on Work Activity. According to the Labour Code, employment according to those agreements is limited to 350 hours per calendar year and to 10 hours per week, respectively. The proposed changes to early retirement regulations would also affect some of self-employed people. On 22 September 2010, the government approved the MPSVR SR proposal through resolution No. 628/2010 (in Slovakian), which entitles the Prime Minister, Iveta Radičová, to submit the draft bill to parliament. The new rules were expected to take effect from 1 January 2011. The bill is also expected to amend other issues related to the social insurance system, including the presently valid mechanism for valorisation of old-age pensions.

Ludovít Cziria, Institute for Labour and Family Research

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment