Czech third-pillar membership drops after changes
CZECH REPUBLIC – Membership of the Czech Republic's third-pillar pension system peaked in 2012, according to Ministry of Finance statistics, with the number of plans now dropping off.
The earlier system of so-called nine 'transformed' pension funds carrying a guaranteed no-loss return was closed to new members in November 2012 and replaced by non-guaranteed 'participation' funds with different risk profiles and investment strategies.
The number of 'transformed' pension plans fell from 5.13m at the end of 2012 to 5.08m three months later.
The loss of nearly 56,000 plans was only partly due to natural wastage as members cashed in their plans on retirement.
The market had also reached saturation point in late 2012, with close to 80% of the workforce enrolled.
Pavel Jirák, chief executive and chairman of the board at KB Pension company, said: "That's an incredible participation rate for a voluntary system."
The main reason for the fall-off was the increase in the qualifying state contribution threshold, from CZK100 (€3.9) a month to CZK300, to increase members' contributions.
The additional state contribution has long made the third pillar an attractive savings vehicle, especially for older workers, but not to the extent of generating significant retirement income.
The state subsidy this year ranges from a minimum CZK90 a month up to CZK230 for member contributions of CZK1,000 and above.
As a result of the change, the average monthly member contribution grew over the first quarter of 2013 by 14.2% to CZK531.1 and that of the state by 4.9% to CZK113.3.
The third pillar has other incentives. Both the tax-deductable amount on individual contributions and the tax relief ceiling on employer contributions increased by 25% this year.
In the first quarter, plans with employer contributions grew by 2% to 1.34m.
Jirák noted that other factors contributed to the overall pension plan fall-off, including a lower churn rate of plans being cancelled and replaced by new ones, and reduced commissions for pension intermediaries, who are now focusing on savings products such as life insurance investment – which generate much higher fees – and mutual funds.
According to Jirák, market saturation and reduced commissions have also contributed to the low take-up thus far of the replacement 'participation' funds.
These totalled around 8,725 as of end March, according to the Finance Ministry, including 45 transferred from 'transformed' funds.
The overall savings level is higher than in the previous system, with monthly contributions averaging CZK671.6 from members and CZK135.5 from the state.