The amount of pension indexation depends primarily on inflation in the previous year, and the mechanism for determining it has not changed for years – apart from the fact that in some years a percentage-based indexation mechanism was used. This meant that benefits generally increased by a specified percentage, but no less than the indicated amount.
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Pension indexation. How does it work?
The purpose of the annual indexation of pensions is to maintain their real value in relation to price increases. The indexation of pensions, which takes place in March each year, consists of multiplying the benefit by a percentage indexation rate.
The indexation rate is the average annual price index of goods and services for pensioner and disability pensioner households in the previous year, increased by at least 20 percent of the real increase in average wages in the previous calendar year. The chart shows the amount of pension indexation in 2018-2024. The highest increase in pensions took place in March 2023 and March 2024, while the lowest in 2018 and 2019.The fact that pensions grew by almost 15 percent and over 12 percent in the last two years was due to the fact that the Central Statistical Office recorded very high inflation.
Pension indexation in 2025. Forecast
In recent days, information has appeared regarding the forecast of pension indexation that will be carried out in March 2025. Current estimates indicate an over 5% indexation, which means that the lowest pension may increase to just under PLN 1,890. The reason for such indexation is, or in fact will be (the final indexation rate will be known at the beginning of February 2025), largely lower than in previous years inflation, which the Central Statistical Office will calculate for 2024. However, looking at the first 7 months of 2024, we can see that inflation is definitely lower, which will translate into lower inflation for the whole of 2024.
Assuming that the indexation mechanism will not change, and there are no such plans – at least for now – then the indexation will return to a lower level. However, this is not a result of political decisions, as suggested by representatives of the current opposition, but of the indexation mechanism, which is largely based on inflation.. What may change is the increase in the “second component” of the indexation rate, i.e. the real increase in average wages in the previous calendar year. It cannot be lower than 20% of this increase, but it can be increased. Such an increase took place in 2022, thanks to which pensions increased by 7%.
We will find out at the beginning of 2025 what the final indexation rate will be and how much pensions will increase. It is worth remembering that the amount of the lowest pension will translate into the amount of the so-called 13th pension, which will be paid out in April next year and for which funds have been planned in the budget. The draft budget includes PLN 31.5 billion for the payment of additional annual cash benefits (the so-called 13th pension and the so-called 14th pension), as well as PLN 24.2 billion for the indexation of retirement and disability benefits.
The author is Oskar Sobolewski, pension and labor market expert at HRK Payroll Consulting
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Oskar Sobolewski
