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Czech Senate passes third-pillar pension amendments

The Czech Republic’s Senate has approved a range of legal amendments designed to bolster the uptake of third-pillar pension funds.

The amendments were earlier passed by the Chamber of Deputies in November.

The changes include a number of tax concessions, including doubling the annual tax-exempt contribution base to CZK24,000 (€888), and increasing the employer tax-free contribution level by CZK20,000 to CZK50,000.

These changes would come into effect in 2017.

The remaining changes would start in January 2016.

For instance, the age at which members will be able to take their retirement income falls from 65 years to 60.

If they take out their pensions over a period of more than 10 years, the income will be tax exempt.

Workers younger than 18 years will now also be able to join the system, while parents will be able to set up pensions savings for their children.

The new law also makes the third pillar more attractive for providers, raising the maximum commission rate charged by agents from 3.5% to 7%, as well as the cap on administration fees levied by pension companies.

Pension sellers and distributors, who previously had to renew their registration annually at the Czech National Bank, the sector’s regulator, will now have to do so every 24 months.

Jan Sedláček, spokesman for the Association of Pension Funds of the Czech Republic (APS ČR), said: “These changes could stop the decrease of clients in the third pillar.”

The net decline started after a major revamp of the third pillar in 2012.

The earlier established funds, now called “transformed funds”, were closed to new members, and the level at which the state subsidy applied raised.

Their replacement, the “participation funds”, differed in that they offered a range of risk profiles, as well as the absence of a no-loss guarantee.

According to the association’s data, as of the end of the third quarter, membership of the transformed funds had fallen by 302,501 to 4,335,689, while that of the participation funds grew by only 137,599 to 330,544.

Over the period, transformed fund assets grew by 9% in Czech koruna terms to CZK351.7bn, and those of the participation funds by 153.2% to CZK8.7bn.

The Senate also approved the closure of the voluntary second-pillar retirement funds, which starts in 2016.

As of the end of September 2015, these funds had 84,555 members and assets of CZK2.8bn.

This step will also boost the third pillar, as second-pillar members have the option to transfer their savings to an existing or new participation fund.

All these changes become law once signed off by president Miloš Zeman.

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