New retirement savings product: new options for long-term investment
The government will discuss a long-prepared amendment concerning financial market developments, in particular amending the Act on Capital Market Undertakings and introducing a new retirement savings product: a long-term investment product known as a long-term investment account or investment pension product. The proposal also includes the regulation of an alternative participation fund, an increase in the lower and upper limits for obtaining state contributions for investments in pension funds, and the regulation of bonds. The amendment should come into effect on 1 January 2024
Long-term investment product
Under the 3rd pillar of the pension system, it will newly be possible to invest through a long-term investment product. This retirement product allows for the further appreciation of money through state-supported investments.
As it is an investment-type product, it will be possible to invest in assets that may offer potentially higher returns while also entailing a higher risk of the depreciation of the investments. It will be possible to buy, e.g., shares, bonds, units in an investment trust or a foreign investment fund, or derivatives as hedging instruments.
Only banks, savings and credit cooperatives, securities dealers, investment companies, self-managed investment funds or similar foreign entities authorised to provide services in the Czech Republic will be able to offer this long-term investment product.
The product will be tax efficient under conditions similar to those for life insurance or existing 3rd pillar pension products. Information about the maximum amount by which the tax base can be reduced on the employee’s part, and on the exemption of employer’s contributions from income tax on the employer’s part can be found here.
Alternative participation fund
In addition to the long-term investment product, the amendment brings changes to the Act on Supplementary Pension Savings, proposing to introduce a new type of fund in supplementary pension savings, an alternative participation fund for which the fee policy and investment strategy should be set more freely compared to the existing participation funds. This should enable pension companies to invest more dynamically and achieve higher returns for participants.
At the same time, there will be no restrictions on the range of assets in which an alternative participation fund can invest, nor will there be any investment limits.
Changes in the amount of state contributions in pension funds
To motivate participants to increase their contributions, the amendment increases the lower and upper limits for obtaining state contributions when investing in pension funds. The lower limit of the contribution at which entitlement to the state contribution arises is to be increased from the current CZK 300 to CZK 500 per month and the upper limit from the current CZK 1,000 to CZK 1,700 per month. Another proposal is to set the amount of the state contribution in a linear way, namely at 20% of the participant's contribution.
The last significant change in the provision of state contributions concerns persons who are entitled to state contributions when investing in pension funds. According to the proposal, people who have already been granted an old-age pension and persons over 65 years of age will not be able to receive this contribution.