1. Introduction: main characteristics of the social security system (max 6 pages)

Transcription

1 Template for the State of Art Report The state of art report aims at setting up a common knowledge base about the characteristics of national social security systems in partner countries (Bulgaria, Czech Republic, Hungary, Italy, Poland and Romania). The review will focus on the following dimensions of social security: - Old-age pensions and early retirement pensions - Survivor pensions - Disability benefits - Unemployment benefits - Family benefits - Maternity and paternity benefits - Sickness benefits - Minimum resources (means-tested) benefits - Pensions private schemes 1. Introduction: main characteristics of the social security system (max 6 pages) i) short history; It is over 80 years since the modern social insurance came to the Czech lands. Act No. 221/1924 Collection of Laws and Regulations, on Sickness, Disability and Pension Insurance for Employees was adopted on 30 October The act introduced different insurance types, insurance courts and criminal liability for failure to pay insurance contributions as well as penalties for breaching other obligations, without which the system would not function. ii) main institutions involved (names and roles); Ministry of Labour and Social Affairs unemployment benefits, family benefits, paternity benefits Labour Office of the Czech Republic, Regional branches and the Branch of the capital of Prague unemployment benefits, family benefits, paternity benefits, Czech Social Security Administration, district social security administration pension insurance (old age, invalidity, survival), sickness insurance (sickness pay, attendance allowance), maternity benefits (maternity benefit, compensatory benefit in pregnancy and maternity) Ministry of Defence pension and sickness insurance for employee s Ministry of Internal Affairs - pension and sickness insurance for employee s Ministry of Justice - pension and sickness insurance for employee s iii) financing principles (general);

2 The social insurance system includes the basic compulsory pension insurance and sickness insurance. The contributions to the state s employment policy are also collected within the framework of the system, as well as the social security contributions. The state social support system is a non-contributory system which is financed from the state budget and administered by the assigned state bodies. By means of the state social support system, the state contributes in particular to families with dependent children in the case of an acknowledged social situation which the family is unable to resolve using its own funds and abilities. The social support payments follow the life cycle of the dependent child frombirth through to the end of the education process and they provide help to families with children in various diffi cult situations (such as insufficient income, care for a new-born or small child, care for a child with a disability, an incomplete family and so on). The social care allowances for individuals with disabilities react to the certain specifi c needs for this group of individuals. They assist in resolving the need for mobility, housing and aids. iv) coverage; I. Social Insurance Participation in the pension insurance scheme The participation in the basic pension insurance scheme iscompulsory upon the fulfi lment of the designated conditions. The Pension Insurance Act, which contains the appropriate legalregulations, does, however, also enable voluntary participation inthe pension insurance scheme at a designated extent within the framework of the basic compulsory pension insurance scheme. A uniform set of legal regulations apply to all the individual groups of insured individuals [individuals in employment,individuals in the services, co-operative members, selfemployed individuals and other groups of insured individuals]. The legal right to a pension arises once the legally designatedconditions have been fulfi lled.all of the decisions on the entitlement to pension insurancepayments and the amount or payment thereof are subject tocourt review. the basic pension insurance scheme is economically guaranteed bythe state, because it is not possible to leave pensioners withoutany source of the funds, on which they are existentially dependent. The merit principle only manifests itself in the pension systemto a limited extent as a consequence of the simultaneousapplication of the principle of social solidarity (the existenceof the reduction limits, which are used to limit the charging ofhigher earnings in the designated manner, causes a fall in the relative level of the pension with increasing earnings which can nbe charged for the purposes of pension insurance). Participation in sickness insurance Sickness insurance is participated by employees (among whom we also include the members of the armed forces and security forces) and self-employed individuals. Employees are obliged to participate in the sickness insurance scheme Sickness insurance remains voluntary for self-employed individuals. The compulsory participation in the sickness insurance scheme arises for employees, if they fulfi l the 3 basic conditions set out in the Sickness Insurance Act, which are: the performance of work in the territory of the Czech Republic in employment undertaken in labour law or labour relations which may form the basis for participation in the sickness insurance, the scope of employment which is designated by the minimum number of days (the employment has lasted or should last at least 15 calendar days),

3 the minimum amount of the agreed income (this involves the so-called determinate income, the limit of which has been designated at CZK and will be increased according to the development of the average wage). Special conditions for the participation of employees in sickness insurance are designated for the case of small-scale employment, i.e. employment, for which the conditions of the performance of the employment within the territory of the Czech Republic and the length of the duration of the employment have been fulfi lled, but the condition of the negotiated earnings in employment at the designated amount have not been fulfi lled (i.e. at least CZK). During the performance of small-scale employment, the employee is only insured in those calendar months, in which he/ she earned at least the appropriate determinate income. Self-employed individuals may participate in the sickness insurance scheme, if they undertake gainful activities outside the territory of the Czech Republic, but only upon the basis of an authorisation arising from the legal regulations of the Czech Republic. The participation in the sickness insurance arises upon the basis of the submission of a sickness insurance registration form and the payment of the sickness insurance contributions. The sickness insurance of selfemployed individuals lapses on the fi rst day of the calendar month, for which the selfemployed individual has not duly paid the insurance contribution. II. State social support Persons-Czech citizens and foreigners - have a right to benefits if they and the family/household members assessed jointly with them are registered as permanently resident in the Czech Republic and have their residence here. For non-eu foreign nationals, the registration as permanently resident in the Czech Republic is considered to be the period once 365 days have passed since the date they registered to stay in the Czech Republic. This does not include any period during which a person is seeking asylum. Act No 117/1995 Coll. on State Social Support stipulates other persons eligible for state social support benefits, if they have their residence in the Czech Republic. In the range of persons covered, there are also EU nationals who are subject of directly applicable legislation of the EU. Entitlement to the payment of benefits expires once three months have passed since the date to which the benefits apply. In the case of one-off benefits, an entitlement expires one year as of the date to which the benefit applies. Income decisive for an entitlement to state social support benefits includes, in particular, income from dependent activity (employment), income from entrepreneurship or other self-employment, sickness and pension scheme benefits, unemployment benefit, including similar income from abroad. Net income is taken into account in the decisive income. Family for the purposes of state social support consist of parents and dependent children if they reside jointly and cover costs of their needs in common. Dependent children are children up to the end of compulsory school attendance and beyond, if they undergo further education or vocational training, or if they are disabled, but up to a maximum of 26 years of age. In the case of housing allowance, all persons registered as permanently resident in the flat are jointly assessed and the condition of covering costs of their needs in common is not requested. v) possibility to cumulate benefits; There is not general answer. It depends on the indivudal type of benefits.

4 vi) application procedures. Pension insurance The Czech Social Security Administration is competent for a decision about entitlement and amount of a benefit. The entitlement examined after submitting an application on a prescribed form at the locally competent District Social Security Administration pursuant to the place of the applicant s permanent residence. With an applicant who does not have a permanent residence in the Czech Republic, any District Social Security Administration fills in the Czech Republic in the application Sickness insurance Sickness insurance for all insured people (with the exception of officers, those in custody and convicts) will only be conducted by District Social Security Administrations. The District Social Security Administration will pay the appropriate benefit within 1 month after the day on which the application (i.e. the proof of the right to the benefit payment) was delivered to this Administration. Employees may choose how the benefits will be paid to a bank account or in cash (by money order); if paid in cash (by money order), the cash delivery costs will be borne by the employee. The payment of benefits to foreign countries, on the basis of insured person s application, can only be made to an insured person s bank account, with the insured paying the money transfer costs. State social support Applications for state social support benefits are handled by the contact points of the Regional Branches of the Labour Office of the Czech Republic based on the (permanent) residence of the person entitled to the benefit (the eligible applicant). Applications for benefits are submitted on forms prescribed by the Ministry of Labour and Social Affairs. The addresses of the Regional Branches of the Labour Office of the Czech Republic can be found at The application forms are available from or These appellate body is the Ministry of Labour and Social Affairs. The Czech Social Security Administration (further CSSA ) is the largest financial organization of the Czech public administration with annual income and expenses of almost CZK 700 billion and nearly 9000 employee s. As part of the public administration, the CSSA falls under the Czech Ministry of Labour and Social Affairs. The CSSA contributes more than a third to the national budget by collecting social security premiums and contributions to the state employment policy. It covers social security issues for almost 8 million clients. The Director General of the CSSA is nominated by the Minister of Labour and Social Affairs. The CSSA Headquarters are settled in Prague and further round 90 District Social Security Administrations are established in all big cities and administrative centres; informatik for clients is provided via these bodls as well by Central Information Office in Prague and free call-centres (for pensions, sickness instance and executions). One of the main tasks of the CSSA is to collect and enforce payable social security premiums, which includes pension insurance, sickness insurance and a contribution to the state employment policy. The CSSA takes decisions on pension benefits (except pensions within the responsibility of the Interior, Defence and Justice Ministry) and arranges to pay them. These include old-age pensions or disability pensions, widows and widowers pensions and orphans pensions. The CSSA also takes decisions on sickness benefits in cash (sickness benefits, maternity cash benefits, compensatory pregnancy and maternity benefits and also allowances for care of a family member) and arranges for them to be paid. The CSSA also includes the Medical Assessment Service which assesses the health condition and work ability of citizens for the purposes of sickness and pension insurance, state social support and long-term care

5 benefits. They also check the assessment of temporary work inability made by treating physicians. In accordance with Regulation (ECC) No. 883/04 and 987/09 on the coordination of social security systems, the CSSA is the liaison body and competent institution for cash sickness benefits and maternity benefits, pensions and determining the applicable legislation, in preparation is the Access Point for these competencies. The CSSA also makes sure 30 bilateral agreements on social security falling under the scope of its activities are implemented, pays out pensions to 72 states (in 2011 round ). All figures related to international agenda are increasing year by year. A few data and figures: International area: liaison body (Headquarters) competent institution (CSSA Headquarters - pensions) determination of legislation applicable institution of the place of residence and the place of stay (DSSAs) contact institution for pensions (Headquarters) designated institution for recovery and offsetting Pensions - CSSA decides: on benefits according to the domestic legislation and on benefits according to the EC Regulations in accordance with bilateral agreements on social security issues approx. 400,000 decisions every year Length of the procedures on average in national pension cases: 30 days old-age pension 40 days survivor s pension invalidity pension Lengths of procedures in international pension cases: another 100 days on average Cca 30 bilateral agreements (14 out of EU/EEA area) Payments to 72 countries, recipients monthly (Life certificates) Year Number of applications for national pensions in the years Old-age pensions altogether Thereof early old-age pension Invalidity pensions Survival pensions Comment to the table: 1) These statistical data are obtained by registration the application form into the system (PC) in the given year, which allows division into the types of pensions. The actual numbers of applications in particular years (including those, whose registration does not get through PC) were: in a year All

6 in a year in a year in a year in a year Applications submitted for international pensions: ,289 9,313 11,087 12,378 13,167 13,774 15,995 15, ,648 4,447 5, Information by typology of benefits PENSION SYSTEM Along with sickness insurance, basic pension insurance is part of social insurance in the narrow sense of the word. The Czech pension system is composed of two parts. The first pillar is obligatory basic pension insurance, defined-benefit (DB) and pay-as-you-go (PAYGO). It is universal and covers all economically active persons; the legislation is the same for all insurees; there are no special schemes for different sectors etc. For the force departments (e.g. army servicemen, policemen, customs officers, firemen) there are merely some differences in the organisational and administrative realm. A pension from basic pension insurance is collected by more than 99% of the population above the age limit for eligibility for old-age pension. Besides this there is voluntary, supplemental, defined-contribution (DC) pension insurance, financed out of supplemental pension insurance with a state contribution. In EU terminology, supplemental pension insurance with a state contribution can be regarded as the third pillar of the pension system. Products of commercial insurance companies most notably life insurance also form part of the third pillar. So far, pensions awarded from the third pillar have accounted for a negligible proportion of pensioners incomes. This pillar is not

7 covered by the Ministry of Labour and Social Affairs web site, because it falls under the authority of the Ministry of Finance. The second pillar customary in EU member states (workplace pension schemes) does not exist in the Czech pension system. The fundamental material-law regulation governing pension entitlements under basic pension insurance, the way pension amounts are defined and the conditions for paying them out is Act No. 155/1995, on pension insurance, as amended, which entered into effect on 1 January Types of pension The following pensions are provided out of basic pension insurance: old-age (including early old-age pension ); disability; widows and widowers ; orphans. The pension is composed of two components, namely: a basic assessment (defined as a fixed sum that is the same for all types of pension regardless of the duration of the insurance period and size of earnings); and a proportional assessment. If the conditions of entitlement to more than one pension of the same kind or payment of oldage or disability pension are satisfied, only one pension, the larger one, is paid out. If the conditions entitling a person to old-age or disability pension and to widows or widowers pension or orphans pension are simultaneously satisfied, the larger pension is paid out in full and half of the proportional assessment of the other pensions is paid out, unless the act on pension insurance stipulates otherwise. Decisions on entitlement to a pension and its amount and payment are made by the Czech Social Security Administration, save in cases where these decisions fall to the social security authorities of the ministries of defence, the interior and justice (in the case of members of the armed forces, the police and the fire brigade). Pension insurance Under the act on pension insurance persons participating in this insurance are provided for in life situations such as old age, disability and the death of the breadwinner. In these situations insurance payers are entitled to receive pension security benefits. Along with sickness insurance, basic pension insurance forms part of social security within the meaning of Act No. 582/1991, on the organisation and implementation of social security, as amended. The fundamental piece of legislation governing pension entitlements, the way pension amounts are defined and the conditions for paying them is Act No. 155/1995, on pension insurance, which entered into effect on 1 January 1996.

8 Pension insurance is governed by the following regulations (links to the Public Administration Portal): Act No. 155/1995, on pension insurance; Act No. 582/1991, on the organisation and implementation of social security; Act No. 100/1988, on social security; Decree No. 284/1995, implementing the act on pension insurance; Decree No. 149/1988, implementing the act on social security. Mandatory pension insurance Those performing gainful activity participate in pension insurance on the assumption that their gainful activity is extensive enough to establish participation in the insurance. Range of insured persons As of 1 January 2012, the following gainfully employed individuals shall be parties to pension insurance coverage, provided that the scope of the wage-earning activity establishes their participation in sickness insurance coverage: a) Employed employees; b) Members of the Police Force of the Czech Republic, the Prison Service of the Czech Republic, the Security Information Service, the Office for Foreign Relations and Information, the Fire Rescue Service of the Czech Republic, the Customs Administration of the Czech Republic, professional soldiers, and civil servant pursuant to the Civil Service Act; c) Members of cooperatives in cooperatives, if in addition to their industrial relations they also carry out work for the cooperative, for which they receive remuneration; d) Individuals, who are, pursuant to a special legal regulation, appointed and/or elected to act as the head of an administrative authority or the statutory body of a legal entity established pursuant to a special legal regulation, or to act as the deputy of such a head or statutory body, if this head / statutory body is only one person, and the appointment / election did not result in an employment / service relationship for these persons, and physical entities holding a public office outside of an employment / service relationship pursuant to a special legal regulation, if the Labour Code applies to their employment relationship within the stipulated extent; e) Employees with an agreement on working activity; f) Employees based on an agreement to complete a job, provided their reported income exceeds CZK g) Judges; h) Members of municipal councils and city districts / precincts councils of regionally subdivided statutory cities and the city of Prague, who are released, on a long-term basis, to hold the office or who were not employed prior to being elected as councilmen, however, who hold the office to the same extent as councilmen released on a long-term basis; ch) Members of the Chamber of Deputies and Senators of the Senate of the Parliament of the Czech Republic and the Members of the European Parliament, elected within the Czech Republic; i) The President of the Czech Republic, cabinet members, the president, the Vice-President, and members of the Supreme Audit Office, members of the Council for Radio and Television Broadcasting, members of the Institute for the Study of Totalitarian Regimes,

9 members of the Czech Telecommunication Office, the financial arbitrator, the deputy financial arbitrator, the Public Defender of Rights, and the Deputy of the Public Defender of Rights; j) Voluntary day care employees; k) Foster-parents, who provide foster care within establishments that provide foster care pursuant to a special legal regulation, or who receive remuneration for providing foster care as a foster-parent in special cases pursuant to a special legal regulation; l) Convicted persons serving a sentence of imprisonment enrolled for work and Individuals serving a prison sentence reintegrated into work and persons in security detention reintegrated into work m) Employees within employment concluded according to foreign legal regulations. n) Partners and executives of limited liability companies and limited partners in special limited partnerships if they carry out work for the company outside of an employment relationship and such work is remunerated, and directors of public undertakings or utilities if they carry out work for the company outside of an employment relationship and such work is remunerated o) Authorised agents (proxies) if their income from their work as agents (proxies) is deemed income from dependent activity under the Income Tax Act p) Members of collective bodies of legal persons, where such members are remunerated for their work in such bodies, provided the income for their work in such bodies is deemed income from dependent activity or emoluments under the Income Tax Act q) Liquidators (receivers) if their income from their work as liquidators (receivers) is deemed dependent activity under the Income Tax Act r) Heads (directors) of establishments (branches) of legal persons where the registered office of such legal person is located in a state with which the Czech Republic has not concluded an international agreement on social security, provided such establishments (branches) are registered in the Commercial Register and the permanent place of work of such heads (directors) is in the Czech Republic. The period of insurance shall be documented by one personal pension instance file (see personal records). Self-employed persons, provided they carry on their business in the Czech Republic and fulfil certain stipulated conditions, and persons who voluntarily take part in pension insurance shall also be parties to pension insurance. Voluntary participation in pension insurance Voluntary participation in pension insurance coverage is possible for individuals who are 18 years old or older. The appropriate district social security administration (DSSA) for the place of one s permanent residence or for one s reported place of residence (in the case of a foreigner) accepts applications and keeps records of voluntary pension insurance coverage. Individuals who do not have a permanent or reported place of residence in the Czech Republic may submit applications to any DSSA, which is obliged to accept them. If the application for participation in voluntary pension insurance coverage is submitted at the time when pension proceedings are already underway, the DSSA where the pension insurance coverage request has been filed is the appropriate DSSA in proceedings on payment of the insurance premium. As of 1 January 2012, participation in voluntary pension insurance coverage is possible only until the day that immediately precedes the day of establishment of the entitlement to old-age pension.

10 From January 1 st 2012 the minimum insurance premium for voluntary insurance is CZK 1,760. It is possible to participate in voluntary pension insurance pursuant to the provisions of 6, section 1 of Act no. 155/1995 Coll., as amended, for the following reasons: a) An individual is registered by a labour office as a job applicant, provided unemployment benefits / retraining benefits are not awarded for this period; b) Systematic preparation for a future occupation secondary school or university in the Czech Republic or abroad, as the case might be, if according to the decision of the Ministry of Education - this study program is equal to study programs at secondary schools and universities in the Czech Republic; with the exception of the first six years of this study after reaching the age of 18; the first 6 years after reaching the age of 18 is included as from This insurance is possible as from As of 1 January 2010, individuals who reach 18 years of age may register for voluntary pension insurance. Confirmation about the duration of one s studies has to be submitted along with the insurance registration application or insurance deregistration application. Studies can be demonstrated by presenting a report card, credit book, or confirmation from the respective school. The presented documents have to show the date of commencement or termination of studies. These two types of voluntary insurance coverage can even be applied retroactively prior to submitting the application without any time limits. c) Gainful activity abroad after , in case of: An employee within employment; Members of cooperatives in cooperatives where an employment relationship of the members to the cooperative is a necessary condition of their membership, if in addition to their industrial relations they also carry out work for the cooperative, for which they receive remuneration; Self-employed persons. d) Long-term voluntary service on the basis of a contract concluded with the delegating organization. e) Activities in the Czech Republic on behalf of a foreign employer in case of individuals, who are employed by a foreign employer and who act on behalf of (in favour of) this employer in the Czech Republic. It is also possible to participate in the insurance prior to submitting an application, however only for up to two years immediately preceding this day. f) Discharge of the office of Member of European Parliament elected in the Czech Republic in force from 19 September 2009 [Section 6(1)(f) of Act No. 155/1995 Coll.]. g) Residence abroad for the reason of accompanying one s spouse who is a member of the diplomatic corps of the Czech Republic in force from 1 January 2010 [Section 6(1)(g) of Act No. 155/1995 Coll.]. These two types of voluntary insurance coverage can even be applied retroactively prior to submitting the application without any time limits, but no sooner than as of the date of force of the statutory amendment. h) Voluntary insurance coverage without stating a reason:

11 Individuals over 18 years of age who submitted a voluntary insurance coverage registration application even though they do not fulfil the conditions stated above may also apply for voluntary pension insurance coverage. In such case, however, participation in insurance coverage is possible for a maximum of 10 years. For the period prior to the date of submission of the application, participation in insurance coverage is possible for no more than one year immediately preceding such date. If the ten-year period expires and one does not submit an insurance deregistration application, participation in the insurance coverage ends on the last day of such period. Obligations of Employers According to the Act an employee can be a legal or physical entity who employs at least one employee, and a state organisational unit, which includes employees in employment or those who are employed through a work agreement. An employer carries out activities connected with insurance tasks at his own expense. A local affiliation to the District Social Security Administration office is determined according to an employer s place of business depending on whether he/she does not have a payroll department or the place of a payroll department is not the same as the employer s place of business; or according to an employer s place of a payroll department depending on whether he/she does have a payroll department and its place is not the same as the employer s place of business. As for an employer a physical entity, a place of business is considered to be his/her place of residence in the Czech Republic, and if he/she is a foreigner his/her notified place of residence in the Czech Republic. If a physical entity an employer does have permanent residence, nor a notified place of residence in the Czech Republic, a local affiliation to the District Social Security Administration office is determined according to the place where business is carried out (or according to his/her place of work, the place of work of his/her employees) in the Czech Republic. If a foreign legal person is an employer whose wage division is not located in the Czech Republic, the Prague Social Security Administration, located at the address Trojská 1997, Prague 8, has been designated the locally pertinent social security administration. Keeping personal pension insurance records (PPIRs) is one of the obligations of employers laid down by Act No. 582/1991, on the organisation and implementation of social security, as amended. Employers keep PPIRs for every person participating in pension insurance for the individual calendar year, or part thereof if gainful activity establishing participation in pension insurance was begun or ended during the calendar year. PPIRs are also kept for recipients of old-age pension who have not yet reached pensionable age (i.e. recipients of early old-age pension who are not entitled to receive old-age pension after starting employment) and also, for 2009, for recipients of old-age pension who are gainfully active having reached pensionable age, if they were participants in pension insurance abroad at any time in the past or in Following a change in the legislation on entitlement to increased pension for a period of gainful activity when collecting old-age pension, it has been necessary since to keep PPIRs for all oldage pension beneficiaries as well.

12 Participation in pension insurance is not established and records are not kept in the case of gainful activity whose extent does not establish participation in sickness or pension insurance. For every calendar year, after the close of books (close of payroll), but no later than on 30 April the following calendar year, and if participation in pension insurance is terminated before of the given calendar year within 1 month after the final incomes settlement, but no later than by 31 January of the following calendar year, the following information is set down in the PPIRs: employer s identification data; citizen s name, last surname, family surname, date and place of birth, place of permanent residence and birth index number; type of gainful activity; duration of participation in pension insurance; period of pension insurance; assessment base for insurance contributions to social security and the contribution to state employment policy; periods which are excluded from the personal assessment base when calculating pensions; periods which, from the date on which the age necessary for old-age pension eligibility is attained, are not regarded as performance of gainful activity for the purposes of increasing the old-age pension proportional assessment. Social Security Premium Employers, employees who are participants in sickness and pension insurance, self-employed persons, and people who have voluntarily signed up for pension insurance are obliged to pay insurance. The legal regulations of premiums are contained in the Act No. 589/1992 Col., on Premiums for Social Security and Contribution to the State Policy of Employment, as amended. Premiums are income from the state budget and it includes: premiums on sickness insurance premiums on pension insurance contribution to the state policy of employment (Does not include premiums for health insurance, which is collected by health insurance companies.) The amount of premium is determined by a percentage rate from the basis of assessment established for the decisive period. This is for employers the calendar month, for which premium is paid. For self-employed persons, the period concerned is a calendar year and the assessment base for calculating the insurance premium is the amount that they themselves determined, but not less than 50% of the tax base. Premiums are paid in Czech currency. As the date of payment is with book transfers from a bank account considered the date, when debiting from the premium payer s acount was executed, with payments in cash the date, when the bank, the holder of post licence, or the competent OSSZ received cash. Maximum Calculation Base for Employees

13 There is a new maximum calculation base for payment of social security premium and contribution to the state employment policy (hereinafter just Insurance Premium), defined as 72 multiple of the mean annual wage. The maximum calculation base for the purpose of insurance premium calculation amounts to CZK ,-. The procedure in case of reaching the maximum calculation base then depends on the number of employers of the respective employee. If in a calendar year the sum of the calculation bases of an employee exceeds the maximum calculation base and the employee only had one employer in the calendar year in question then the employee shall not pay for that year the premium from the amount in excess to the maximum calculation base; this also applies to more employments in the given calendar year with the same employer. The calculation base for the employer shoe not then include the amount in excess of the maximum calculation base of the employee from which the employe does not pay premium in the given calendar year. That means that the employer does not pay premium for the employee from the excess amount from which the employee itself does not pay premium (6 % of the calculation base), and does not even pay premium for itself from the same excess amount (25 % of the calculation base). If in a calendar year the sum of the calculation bases of an employee exceeds the maximum calculation base and the employee was employed with more employers that calendar year, then the premium paid by the employee from the sum of his or her calculation bases in all jobs in excess to the maximum calculation base is considered overpayment by the employee; this overpayment, however, cannot be higher than the amount deducted from the employee's income as insurance premium. In such case the employee shall submit a written request for return of the overpayment supported with confirmations from all his or her employers about the calculation base achieved by the employee with them in the given calendar year for which the premium was deducted from the employee's salary. The affected employers, however, shall not be returned the premium paid for themselves (25 % of the calculation base). Maximum Calculation Base of Self-Employed and Employee at the Same Time The maximum calculation base of the self-employed for the purpose of premium payment since 1 January 2010 has also been 72 multiple of the mean wage. The maximum calculation base shall also apply in cases when the insured performed work as self-employed and employee concurrently in the course of the calendar year in question. The calculation base of such an insured shall be reduced by the amount of excess of the maximum calculation base calculated as the sum of calculation bases for all his or her employments including the self-employment. The reduction shall first be applied to the calculation base of the person's work as self-employed. If the self-employed person has reached the maximum calculation base in his or her job with an employer then the person shall not pay premium from its activity as self-employed but the pension insurance shall also extend to this activity. The self-employed shall not be liable to pay the advance premium since the calendar month in which he or she has notified the SSA about reaching the maximum calculation base in the employment with the appropriate documentation. The fact whether the self-employed has reached the maximum calculation base in a single job or in more jobs for different employers does not matter for this purpose. The basis of assessment is:

14 with an employee, who is employed under the Czech legislation, a sum of his/her gross counting incomes credited by the employer in relation with pursuance of employment, which establishes participation on sickness insurance an incomes credited by employer in relation with employment which establishes participation on sickness insurance Act. No. 589/1992 Coll., as amended); with an employee, who is employed under different legislation thant the Czech legislation, a sum of incomes credited to him/her by employer in relation with this labour relation, which establishes participation on sickness insurance excluding incomes that reimburse to this employee expenses for employer or damage ocurred in relation with this employment; with an employer, a sum corresponding to the total of basis of assessment of all of its employees. Self-Employed Persons According to Act No. 155/1995 Coll., on Pension Insurance, as amended, the following are considered self-employed: they carry out an independent gainful activity, or they co-operate in carrying out an independent gainful activity, if the income from this activity and the expenses incurred by it can be divided to this person pursuant to Act No. 586/1992 Coll., on the Income Taxes, as amended, they have completed the mandatory school attendance and have reached at least the age of 15. An independent gainful activity is understood as: the business of farming, if the natural person carrying out the farming is registered pursuant to special legislation carrying out a craft on the basis of an authorization to carry out a craft pursuant to special legislation the activity of a partner in a partnership or general partner in a limited partnership carried out on behalf of this company carrying out an artistic or other creative activity on the basis of copyright relations Carrying out an independent gainful activity in the Czech Republic is understood both as carrying out an independent gainful activity in the Czech Republic and outside the Czech Republic, if it is carried out on the basis of an authorization for carrying out this activity under Czech legislation. This will apply unless the applicable legislation is governed by a relevant international agreement on social security or by Regulation (EEC) No. 883/04 and Regulation (EEC) No. 987/09. Types of independent gainful activity From 1 January 2004 the difference between a major and subsidiary independent gainful activity has been distinguished. An independent gainful activity is always considered major unless the conditions for a subsidiary independent gainful activity are fulfilled. An independent gainful activity is considered subsidiary if the self-employed person in the calendar year:

15 was employed was entitled to the payment of a invalidity pension or an old-age pension has been awarded to him/her was entitled to a parental allowance or maternity cash benefit or sickness benefit due to pregnancy and delivery if there is an entitlement to these benefits on the basis of sickness insurance of employed persons or cared personally for a person under 10 years who is dependent on the care of another person in degree I (light dependency) or for a person who is dependent on the care of another person in degree II (medium dependency) or degree III (heavy dependency) or degree IV (full dependency), if the person who is dependent on the care of another person is a close relative or lives with the self-employed person in a common household served in the Czech military, unless they are professional soldiers, or community service was a dependent child within the meaning of 20 (3) (a) of Act No. 155/1995 Coll., on Pension Insurance, as amended (study) Insurance Participation of Self-Employed Persons If the statutory conditions are satisfied participation in pension insurance and the payment of a contribution to the state employment policy are mandatory for self-employed persons. Sickness insurance is voluntary. Participation of self-employed persons in pension insurance A self-employed person participates in pension insurance: in a calendar year for the period in which he/she carried out a major independent gainful activity, in a calendar year for the period in which he/she carried out a subsidiary independent gainful activity, if the income from the subsidiary independent gainful activity after deducting expenses reached in the calendar year at least the so-called decisive amount. in a calendar year for the period in which he/she carried out a subsidiary independent gainful activity, if he/she registered for participation in pension insurance. Obligations of a Self-Employed Persons in Social Security System The main obligations of self-employed persons under the social security system include, if the statutory conditions are fulfilled, paying pension insurance premiums and the contribution to the state employment policy and submitting an annual Survey of income and expenses. The period for which the self-employed person was not obliged to pay premiums is not subject to evaluation in terms of entitlement to pension benefits. In addition, the self-employed person must notify the relevant social security administration of the day: of commencing (resuming) an independent gainful activity or co-operation in carrying out an independent gainful activity and to state the date from which he/she is authorized to carry out this activity, and in addition the co-operating person must report the first name, last name, permanent residence and birth number of the self-employed person with whom he/she is co-operating, of terminating an independent gainful activity, of the expiry of an authorization to carry out an independent gainful activity,

16 from which an independent gainful activity has been suspended, from which he/she is not employed, not entitled to the payment of a invalidity pension and parental allowance, has ceased to personally care for a person under 10 years who is dependent on the care of another person in degree I (light dependency) or for a person who is dependent on the care of another person in degree II (medium dependency) or degree III (heavy dependency) or degree IV (full dependency), is not entitled to the payment of maternity benefits in cash due to pregnancy and delivery, if the entitlement to maternity benefits in cash arises from the employees sickness insurance, has ceased military (community) service, has ceased to be a dependent child, if the origination of these facts had been reported and proven for a subsidiary independent gainful activity. The self-employed person must meet the above obligations at the latest by the eighth day of the calendar month after the month in which the fact establishing this obligation occurs. The local DSSA/PSSA/MSSA depends on the place of permanent residence of the citizen (the self-employed person) or the registered place of residence in the Czech Republic for a foreigner. If the self-employed person s permanent residence, or in the case of a foreigner the registered place of residence, is not in the Czech Republic, the local responsibility depends on where the independent gainful activity is carried out. If the independent gainful activity is carried out in several places then the local responsible DSSA is where the independent gainful activity is predominantly carried out according to a declaration by the natural person concerned. Survey of income and expenses of the self-employed person Any person who carried out an independent gainful activity for at least part of a calendar year must submit to the responsible social security administration a Survey of income and expenses for the calendar year on the prescribed form, at the latest one month after the date by which the person was obliged to submit a tax return for the calendar year pursuant to special legislation. The Survey can be submitted by one of the following methods: by delivering the paper form to the responsible DSSA/PSSA/MSSA the relevant form is available at these offices. The form can also be downloaded from the CSSA web site by electronic submission, the e - Podání. Payment of Premiums The payment of premiums for social security and contributions to the state employment policy is governed by Act No. 589/1992 Coll., on premiums for social security and the contribution to the state employment policy, as amended. The self-employed person pays: pension insurance premiums, advances on premium payments or supplementary premium payments, sickness insurance premiums provided the insured are participating in it voluntarily. Advance Premium Payments The advance premium payment for a calendar month is due from 1 st to 20 th day of the following calendar month. The advance payments are paid for full calendar months and are 29.2 % of the monthly assessment base.

17 Amounts of advance payments in 2012 Type of independent activity Minimum monthly advance payments Major 1.836,- Subsidiary 735,- The minimum amount of the advance premium payment is determined from the assessment base which equals 50 % of the average monthly income from an independent gainful activity, after deducting expenses, attained in the previous calendar year. A self-employed person who attained the maximum assessment base from employment and reports and proves this fact to the DSSA is not obliged to pay advance premium payments from that month on. Pension Insurance Premiums Pension insurance premiums must be paid by every self-employed person who in the preceding year: carried out a major independent gainful activity, carried out a subsidiary independent gainful activity enough to participate in pension insurance, carried out a subsidiary independent gainful activity and registered to participate in the pension insurance scheme. The self-employed person him/herself determines the amount of the annual assessment base for premium payments. The lowest assessment base is determined as 50% of the tax base (under the Income Tax Act). The minimum assessment base is amended each year by a Decree of the Government and differs for major and subsidiary independent gainful activity. In both cases the months during which the self-employed person was entitled for the whole month to sickness benefits from the sickness insurance scheme for self-employed persons or was granted maternity benefits in cash or carried out military service are not included in this number of calendar months. The maximum (annual) assessment base for self-employed persons for pension insurance premiums and the contribution to the state employment policy is 72 times the average wage. This assessment base for self-employed persons is not reduced by the proportional part. Insurance rates from the assessment base for social insurance in the Czech Republic valid from Pension State empl. Sickness insurance In total insurance Policy (%) (%) (%) (%) Employer 2,3 21,5 1,2 25 Employee - 6,5-6,5-28 1,2 29,2 Self-employed person 2,3 28 1,2 31,5 from the assessment base

18 which cannot be lower than double the amount for the participation of employees and will be determined every year (in 2012: 5000,-CZK) A person voluntarily participating in pension instance A foreign employee in accordance with 3 letter q) of the Sickness Insurance Act (voluntary participation) ,3 (voluntary participation) - - 2,3 Alternative periods of insurance An alternative period of insurance is a period in which no insurance premiums are paid, yet these periods are included in the necessary years of insurance for pensions. That applies if the period of insurance lasted at least one year. There are nine alternative periods. Periods of military service, care for a child and care for an incapacitated/dependent person are counted in full; the remaining six periods are included to the extent of 80%. For the purposes of entitlement to an old-age pension all the alternative periods are counted in full if they were amassed before Those alternative periods that are reduced to 80% for the purposes of pension size are also reduced to 80% if they were amassed after Participation in pension insurance by virtue of an alternative period applies to: persons who are systematically preparing for a future occupation by studying at secondary or higher vocational school (hereinafter secondary school ) or university in the Czech Republic; that applies to the first six years of this study after the attainment of 18 years of age in the period before 2010; persons registered with the labour offices as job-seekers for the period in which they are entitled to unemployment support or retraining support, and to an extent of at most three years also during the period in which they are not entitled to unemployment support and retraining support with the understanding that this three-year period is ascertained retrospectively from the day on which entitlement to a pension was established; the period during which unemployment support or retraining support was not due before the attainment of 55 years of age is included to the extent of at most 1 year; a period of participation in insurance pursuant to Section 6 (1) (a) and Section 2 and a period of gainful activity which, under a special regulation, does not prevent inclusion in the job-seekers register even if this activity establishes participation in insurance, is not included;, disabled persons placed in theoretical and practical preparation for employment or other gainful activity;

19 persons performing military service in the armed forces of the Czech Republic, excluding professional soldiers and soldiers in further service; persons performing civilian service (up to 2004); persons caring personally for a child aged up to four; persons caring personally for a person under 10 who is dependent on the care of another person in degree I (mild dependency) or a person of any age who is dependent on the care of another person in degree II (medium dependency) or degree III (severe dependency) or degree IV (complete dependency), if they live in the same household; the household condition is not required if the person being cared for is a close relative; recipients of a disability pension for third-degree disability (Section 39 (2) (c) of Act No. 155/1995) out of Czech insurance, applicable up to the age necessary for the establishment of entitlement to an old-age pension pursuant to Section 32; for the purposes of participation in insurance persons who are not receiving a disability pension for third-degree disability (Section 39 (2) (c)) but satisfy the conditions for entitlement to this pension and receive a veteran s allowance or an allowance for service pursuant to special acts are also deemed to be recipients of a disability pension for third-degree disability; persons who, after the termination of gainful activity that established participation in sickness insurance pursuant to a special regulation, remain: - in temporary incapacity for work which they did not bring about deliberately, if this temporary incapacity for work arose at the time of this gainful activity or in the protective period pursuant to a special regulation; - in quarantine ordered pursuant to a special regulation at the time of this gainful activity or in the protective period pursuant to a special regulation; - in the support period for the provision of nursing expenses; - in the support period for the provision of financial assistance in maternity in the period before parturition. These periods are assessed as alternative periods of insurance on the condition that they were amassed in the territory of the Czech Republic and that the period of insurance lasted at least one year. Only for the alternative period of caring for a child under 4 is it not required that the care had to be provided in the Czech Republic. Periods of care Up till a period of care for a long-term severely disabled child aged up to 18 requiring extraordinary care (this care also did not have to be provided in the Czech Republic for this period to be an alternative period) and a period of personal care for a largely or completely incapacitated person or partially incapacitated person over 80 were alternative periods. The participation of a person caring for a child under 18 who is long-term severely disabled and requiring extraordinary care and a person caring personally for a largely or completely incapacitated person or partially incapacitated person over 80, provided they live together in the same household, in pension insurance prior to 1 January 2007 is assessed according to the legislation applicable before that date. Up till only a period of care for a relative who is a largely or completely incapacitated person or a partially incapacitated person over 80 was an alternative period. Spouses, first-degree relatives (parents, grandparents, children and grandchildren), siblings, sons-in-law and daughters-in-law are deemed close relatives.

20 Between and a period of care for a person who is not a close relative was an alternative period of insurance provided that person was largely or completely incapacitated or partially incapacitated and over 80. Unlike care for a close relative, however, this period is only assessed for the period after and only in the period in which the carer lived in the same household as the incapacitated person (i.e. constant cohabitation in which the costs of their requirements were paid jointly). A period of care for a dependent person (in degrees II, III or IV, or possibly an under-10 in degree I), care for an incapacitated person (largely, completely, or partially if over 80) and for a long-term severely disabled child requiring extraordinary care up to the age of 18 is proven by a decision of the district (Prague, municipal) social security administration. A decision of the district, Prague or municipal social security administration is also required to prove a man s care for a child under 4, if this care ended by at the latest. The decision is issued on the basis of a proposal for the commencement of proceedings for the issuance of a decision on the period and extent of care. Up to an application for participation in insurance was submitted (the application was submitted no later than two years after the end of the care, with failure to meet this deadline excluding the applicant) and a proposal for the commencement of proceedings on the issuance of a decision on the period and extent of care was submitted. Since only the proposal for the commencement of proceedings is submitted. Since that date submission of the proposal is also bound by a deadline of two years after the care ended. OLD-AGE PENSION In the Czech Republic a citizen is entitled to the award of an old-age pension if he has attained pensionable age and amassed the necessary period of insurance. The age for taking retirement is different for men and women for women it depends on the number of children raised. The necessary period of insurance for receiving old-age pensions has gradually increased since 2010 and its duration for specific insurees depends on the calendar year in which they attained pensionable age. For persons who attained pensionable age in 2012 the necessary period of insurance for entitlement to an old-age pension is at least 28 years; at least 18 years of insurance is enough for persons who in 2012 attained an age at least 5 years higher than the pensionable age of a man of the same date of birth. If you are 65, you become entitled to old-age pension if you have satisfied the conditions for entitlement to disability pension. Old-age Pension Retirement Conditions A condition for entitlement to old-age pension is accumulation of the required period of insurance and attainment of the stipulated age (i.e. retirement age or the age derived therefrom or 65 years of age). On 1 January 2010, Act No. 155/1995 Coll., on pension insurance (the Pension Insurance Act ), was amended. A new retirement age and the new required period of insurance for entitlement to old-age pension were set; changes were also made to the pension amount. The age of retirement also increased, taking effect from 30 September 2011.