The year 2013 brought a number of changes and new possibilities to pension savings. Also, the state-funded supplementary pension insurance (Act No. 42/1994 Coll.), which by the end of 2012 was the only option to save for old-age with the support of the state, has changed thanks to the pension reform, and more precisely, as clients knew it.
III. or the transformed and participating funds
Act No. 427/2011 Coll. on Supplementary Pension Savings has expanded the third pillar with another option for retirement savings, namely supplementary pension savings in participating funds , which will be managed by pension companies resulting from the transformation of pension funds .
The Act also laid down the conditions for separating the assets of existing pension scheme participants from the assets of the pension fund. The assets will be newly recorded in the so-called transformed fund, which will be newly administered by the pension company. Thanks to the separation of assets, it will no longer be possible for the administrator’s costs to be paid directly from the participants’ funds. On the contrary, a transparent fee for the management of the funds of the participants of the funds is introduced. This separation of assets and the introduction of the fee will also apply to the new participating funds.
What is supplementary pension insurance?
Pension insurance, as the participants know, therefore, continues to exist as part of III. the pillars in the form of transformed funds, which can no longer be entered into, this option ended on 30 November 2012. The transferred non-negative income and retirement pension guarantee is retained by the transferred participants to the transformed fund.
The supplementary pension insurance itself is defined by law as the collection of funds from the members of the supplementary pension insurance scheme and the state provided for the benefit of the participants, the handling of these funds and the payment of supplementary pension insurance benefits.
What is Supplementary Pension Savings?
Since January 2013, citizens who want to save for retirement and not just rely on state pensions can continue to save with state support . They can no longer enter supplementary pension insurance (transformed funds), but they can use supplementary pension savings, the so-called participatory funds. Participating funds offer retirement companies and represent the possibility of saving for retirement in the third pillar with a potential for higher appreciation compared to retirement benefit schemes (transformed funds), as they have looser investment rules. Participants can choose savings strategies, which can bring them higher returns, but they also bear the investment risk. The participants of the transformed funds do not have a guarantee of non-negative income.
Supplementary pension savings are defined by law as the collection and placement of contributions by a supplementary pension savings participant, contributions paid by his employer and state contributions to participating funds managed by a pension company and the payment of ancillary pension savings benefits to provide additional income for the participant in old age or disability.
Why is it good to save for retirement?
The main reason for using retirement savings is the risk of a low state pension paid in the future. Due to the unfavorable demographic development, we can expect a decrease in the state pension, which will not cover even the basic needs of the citizen. Savings in the third pillar should be another source of regular income at retirement age, thanks to long-term savings. The basic idea is to gradually accumulate relatively small financial amounts during an economically active life that accumulates on the client’s personal account. The amount saved does not depend only on the amount of the monthly contribution, but newly also on the selected savings strategy (participating funds). Nevertheless, the monthly contribution should be balanced, ie. high enough to guarantee a significant contribution to the pensioner’s budget in the future, but on the other hand, should not overburden the client’s current budget.
When to insist?
The sooner the better. The main argument for the early start of payments is the revenue that the client can influence by selecting the participating fund itself. Thanks to compound interest, there is a situation where money makes money. This means that the total amount saved will always be remunerated, which will be higher from year to year. To achieve an acceptable level of savings, it is good to start saving 30 years ago . Initially, contributions may be lower, younger clients, with career advancement and revenue growth, contributions should increase to achieve sufficient savings in the client’s personal account.
What amount to insure?
Contribution amount is individual, but the following criteria should be considered:
- current income
- expected future income
- participant age
- anticipated retirement
- contributions from third parties, employers.