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Czech pension reform to usher in new second-pillar system

CZECH REPUBLIC - New pension funds established under the Czech Republic’s pension reform could come into effect as early as 2013, experts say.

The country’s new pensions bill, while rejected by the senate and still not signed by the president, has now passed through parliament and has already been published in the official journal.

Helena Hailichová, an associate at CMS Cameron McKenna in the Czech Republic, told IPE: “It might be that parliament will try to postpone the starting date by a year, but that is not certain yet.”

She said the government needed the reform “badly” due to rising costs and the fact the Czech Republic had been one of the last countries in the region to make changes to retirement provision.

Hailichová said the pensions industry viewed the reforms as an “opportunity”, but that the general public was still divided on whether they would succeed, with many older people wary of services not provided by the state.

Under the new pensions law, supplementary schemes will be closed to new entrants and converted to a state-subsidised third pillar, in which new funds can be set up.

For the new second pillar, financial service providers must obtain a license from the government and then set up a pension fund with four sub-funds, each with its own risk profile.

“There will be one government bond fund, which can only invest in bonds issued by the Czech government and other, as-yet unspecified EU countries,” Hailichová said.

Three percent of the social insurance contribution currently made to the first pillar (25% of salary) will be diverted to the second pillar for people who opt-in.

They will also have to pay an additional 2% of contributions to the second pillar and be unable to exit once they have opted-in.

For the first six months after the new law has taken effect, all Czech employees will be able to opt into the second pillar, with only under 35-year-olds being eligible to do so after that initial period.

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