# Problem definition

Nowadays a lot of people say that the Czech Republic will have problems with the retirement pay in the future and that the Czech Republic will have to adjust or modernize its pension system. Pessimists say that there will be no retirement pay in the future or that people will have to work longer. Due to these facts I decided to create a simulation, which will show the evolution of the average retirement pay in the Czech Republic for next 50 years.

# Method

The VensimPLE modelling tool was used for this simulation. The simulation shows the evolution of the average retirement pay from year 2021 to 2071. It is divided into two parts about population and about average retirement pay. The part about population is used for another calculation during the simulation.

# Variables

Population:

It shows the number of people in the Czech Republic. Initial value = 10 707 839. It is calculated as: Population growth - Population decrease. [1]

Population growth:

It shows people, who increase the number of population. It is calculated as: Immigrants * Natality * Population.

Population decrease:

It shows people, who decrease the number of population. It is calculated as: Emigrants * Mortality * Population.

Natality:

This variable shows the annual increase in births and it is set to 1,01048.[2]

Mortality:

This variable shows the annual population decline and it is set to 0,01049.[2]

Immigrants:

This variable shows the number of people, who came in the Czech Republic. It is calculated as: 0,00612 * Yearly growth of immigrants.[2]

Emmigrants:

This variable shows the number of people, who went away from the Czech Republic. It is set to 0,00199.[2]

Yearly growth of immigrants:

This variable shows the annual increase of immigrants. It is set to 1,12766.[2]

Economically active population:

This variable is calculated as: (Population * 0.767) + (Population * (Immigrants - Emigrants)). [3]

Economically passive population:

This variable is calculated as: Population - Economically active population.

GDP:

This variable shows the growth of GDP in the Czech Republic. Initial value = 1,024. It is calculated as: Production and product taxes - Consumption and subsidies.[4]

Production and product taxes:

This variable shows the increase in production and product taxes. It is set to 1,04891.[5]

Consumption and subsidies:

This variable shows the increase of consumption and subsidies. It is set to 1,05132.[5]

Retirement pay growth:

This variable shows the increase of retirement pay. It is calculated as: Population growth rate * Average retirement pay * Average growth of gross average wage.

Retirement pay decrease:

This variable shows the decrease of retirement pay. It is calculated as: Average retirement pay * Population growth rate.

Gross average wage of men:

This variable shows the annual growth of the gross average wage of men. It is set to 1,03.[6]

Gross average wage of women:

This variable shows the annual growth of the gross average wage of women. It is set to 1,04.[6]

Average growth of gross average wage:

This variable shows the average annual growth of the gross average wage. It is calculated as: ((Growth of gross average wage of men + Growth of gross average wage of women)/2) * GDP.

Population growth rate:

This variable shows the annual growth of population. It is calculated from results of population and it is set to 1.06807.

Average retirement pay:

This is the variable that we are examining. Initial value = 14 397 and it is calculated as: Retirement pay growth - Retirement pay decrease.[7]

# Results

The results show that the average retirement pay of the Czech Republic will increase to year 2045 and then it will decrease. Maximal average retirement pay will be 31 464 Kč. It is also interesting that the average retirement pay will be 12 962 Kč in 2071. It is lower than in 2021, when it was 14 397 Kč. Then we can also see the results of population. Population will rise from 10 707 800 to 15 141 000. It also means that the economically active and passive population will rise. The economically active population will be 11 687 500 in 2071 and the economically passive population will be 3 453 490 in 2071.

# Conclusion

In this simulation I created a model, which shows the evolution of the average retirement pay of the Czech Republic in next 70 years. It also shows possible evolution of population of the Czech Republic. The results are very interesting but they are probably inaccurate because the model is simplified and does not contain all possible variables. On the other hand, I think that, according to the growth of the economically active and passive population, we can say that the pension system of the Czech Republic is sustainable in next 70 years. We can for example compare it with the results of Deloitte research, which also shows that the pension system of the Czech Republic is sustainable. However, the evolution of retirement pay is different.[8]

# References

1. Český statistický úřad. Obyvatelstvo. [online]. [cit. 2021-01-18]. Avaliable at: https://www.czso.cz/csu/czso/obyvatelstvo_lide
2. Český statistický úřad. Pohyb obyvatelstva - rok 2019. [online]. [cit. 2021-01-18]. Avaliable at: https://www.czso.cz/csu/czso/cri/pohyb-obyvatelstva-rok-2019
3. Český statistický úřad. Míry zaměstnanosti, nezaměstnanosti a ekonomické aktivity - leden 2020. [online]. [cit. 2021-01-18]. Avaliable at: https://www.czso.cz/csu/czso/cri/miry-zamestnanosti-nezamestnanosti-a-ekonomicke-aktivity-leden-2020
4. Kurzy.cz. HDP 2021, vývoj hdp v ČR. [online]. [cit. 2021-01-18]. Avaliable at: https://www.kurzy.cz/makroekonomika/hdp/
5. Český statistický úřad. HDP Výrobní metoda. [online]. [cit. 2021-01-18]. Avaliable at: https://apl.czso.cz/pll/rocenka/rocenkavyber.makroek_prod
6. Český statistický úřad. Průměrné mzdy - 3. čtvrtletí 2020. [online]. [cit. 2021-01-18]. Avaliable at: https://www.czso.cz/csu/czso/cri/prumerne-mzdy-3-ctvrtleti-2020
7. investujeme.cz. Jak vysoký je průměrný důchod v ČR a bude se příští rok opět valorizovat?. [online]. [cit. 2021-01-18]. Avaliable at: https://www.investujeme.cz/clanky/prumerny-duchod-cr-2020/
8. Deloitte. Jaké budou důchody?. [online]. [cit. 2021-01-18]. Avaliable at: https://www2.deloitte.com/content/dam/Deloitte/cz/Documents/deloitte-analytics/Jake_budou_duchody.pdf