The government plans to reduce state support for building savings by half from January. In the case of pension savings, the maximum monthly contribution from the state will increase by CZK 120, but it will only be 20% instead of the current 23% of the deposited amount.
Expressly, the government’s consolidation package assumes that in the case of building savings, the maximum state subsidy for an annual deposit of at least CZK 20,000 will be only CZK 1,000 from January instead of the current CZK 2,000.
For all contracts, new and existing, the contribution will be reduced from the current ten percent to five percent of the amount saved annually. This means that someone who saves ten thousand CZK a year will receive only five hundred CZK from the state instead of the current thousand CZK.
The state support for this year should still be paid according to current rules. The Ministry of Finance also proposes to abolish the tax exemption of this state support from income tax. However, this does not necessarily mean clients building savings banks must start taxing state support. According to paragraph ten of the Income Tax Act, the support will fall among other income.
“To simplify the Income Tax Act, it is proposed to abolish the unlimited exemption of state support for building savings from tax. The support will now fall among other income and will be tax-exempt if, together with other income, it does not exceed CZK 50,000 per year. For the overwhelming majority of people, nothing will change in the area of tax exemption for building savings,” said Stefan Fous, a spokesman for the Ministry, to Právo.
Last year, the state paid CZK 4.3 billion to support building savings. Czechs have over three million contracts closed with five savings banks.
Changes for Pension Savings
The government wants to motivate people to send higher monthly deposits for pension savings. The minimum deposit amount, from which the right to a state contribution arises, is to be increased from CZK 300 to CZK 500 from January. The maximum deposit amount, above which the contribution no longer increases, will rise from the current CZK 1,000 to CZK 1,700.
Those who save CZK 1,700 or more should receive a state contribution of CZK 340. The maximum contribution is CZK 230 with a monthly deposit of at least CZK 1,000. The state contribution should always be 20% of the deposited amount for deposits of CZK 500 to CZK 1,700. This applies to all contracts, not only new ones but also existing ones.
A significant novelty is that people who have already been granted an old-age pension and persons over 65 will no longer receive state contributions.
The yields of domestic pension funds, especially conservative ones, have long been significantly lagging behind inflation. However, this also applies to offers from savings banks – their rates now mostly range from two percent to 2.5 percent, with the effective interest rate then reaching around six percent thanks to state support.
People with classic pension insurance can transfer their money from a transformed pension fund to one of the participating funds, where the yields are somewhat higher in the long run. However, due to the possible drop in stock markets, they should always carefully consider the transition, incredibly shortly before retirement. Experts do not recommend it to them.
MF wants to introduce a new type of fund in supplementary pension savings, the so-called alternative participant fund. The fee policy and investment strategy should be set more freely in this fund against the existing participant funds. According to the Ministry, this should allow pension companies to invest more dynamically and achieve higher returns for participants, naturally at the cost of higher investment risks.
Due to defined limits, existing participant funds cannot invest in private equity funds, real estate, start-ups, or infrastructure. The range of assets the alternative participant fund can invest in will not be limited, and no investment limits will be set.
Tax Benefits for Pension Savings to Remain
According to the Ministry, there will be no change in the tax benefits of pension savings in connection with the consolidation package. The maximum possible tax savings reach CZK 3,600 annually at a 15% tax rate. The income tax base for individuals can be reduced up to CZK 24,000 per year, and the monthly contribution must be CZK 3,000. The state support or employer does not show in the discount.
The Ministry also stated that it does not plan to pay state contributions conditional on a pension, as speculated, but will also be preserved in a one-time payment.