Saving for retirement will change

The government is going to modify contributions to pension savings. It will take it away from those who save less than five hundred a month and be more generous only to those who start saving more. The maximum state contribution is CZK 230 a month if you save CZK 1,000 or more. The minimum support is CZK 90 for a monthly savings of CZK 300.

Anyone paying less than CZK 500 would not get any support. For monthly savings of CZK 1,000, 1,100, and 1,200, the state support would drop to CZK 180, 198, and 216, respectively, compared to the current CZK 230. For monthly deposits of CZK 1,500 or more, the state would be more generous and, according to the proposal, would pay CZK 270 per month.

“The lower limit of the deposit, from which the state allowance is granted, is being increased from CZK 300 to CZK 500, while the upper limit of the deposit, above which the state allowance does not grow any further, is being increased from the current CZK 1,000 to CZK 1,500,” Gabriela Krušinová, a spokeswoman for the Ministry of Finance, said

“The main goal is to motivate participants to make higher deposits in the third pension pillar and thus to ensure a higher financial reserve for retirement,” the spokeswoman summarized.

According to the proposed mechanism (the amount of the state contribution is 18 percent for deposits of CZK 500 to CZK 1 500), people who save more than CZK 1 280 per month will benefit more than today. Those who save only CZK 500 would receive only CZK 90 from the state each month, the same as the current minimum deposit of CZK 300.

Those who can only save smaller amounts will not be happy with the change. For example, for a monthly deposit of CZK 700, they now receive CZK 170 from the state, while the new amount will be only CZK 126.

Almost half of the people in the Czech Republic have a participatory or transformed fund; 4.4 million clients save with pension companies in the so-called third pillar of the pension system.

Tax relief for investment accounts

According to the Finance Ministry, the planned changes are intended to strengthen multi-source financing of pensions and reduce imbalances in the pension system.

The proposal has already gone through an inter-ministerial comment procedure and is expected to reach the government’s desk by the end of January.

According to Krušinová, the parameters of the proposal may not yet be final. “The material may still undergo parametric changes following the settlement of comments and subsequent coalition negotiations before being submitted to the government,” she added.

The finance ministry’s proposal also includes a tax-advantaged investment pension account. This product is supposed to allow saving for old age and eventually investing this money in stocks, bonds, mutual certificates, and the like.

“Provided the specified conditions are met, i.e., the duration of the product is at least 60 months, and the funds are withdrawn at the age of 60 at the earliest, this product will have the same tax advantage as life insurance and third pillar pension products today,” Krušinová said.

“This means the possibility to deduct from the tax base the funds invested up to CZK 48,000 per year for all three products.”

The ministry hopes introducing the new account will increase people’s interest in creating savings for old age through the capital market, which is currently relatively neglected,” the spokesperson said.