Czech Pension Savings Reform: Young Savers to Get More State Support as Old Funds Face Closure

The Czech Ministry of Finance has drawn up a sweeping reform of the pension savings system that, according to its own calculations, could boost the average sum saved by retirement by one million crowns for those who start putting money aside early in life. The changes touch on the size of state contributions, the option to withdraw part of one's savings early, investment strategy, and management fees — while the old "transformed" funds are set to be shut down entirely by the end of 2036.

Young Savers to Get Double the State Support

Currently, the state tops up contributions for all participants except pensioners by 20% of their monthly payment, provided it falls between 500 and 1,700 crowns, with the state contribution capped at 340 crowns a month. Under the new rules, people under 30 will receive twice as much — 40% of their contribution. At the maximum monthly contribution of 1,700 crowns, state support could reach 680 crowns a month, while at the 500-crown level it would rise to 200 crowns, up from the current 100.

For children and teenagers under 18, the minimum contribution required to qualify for state support will also be lowered, from 500 to 100 crowns a month.

A Third of Savings Could Be Withdrawn Early

People aged 18 to 36 will be allowed to withdraw up to a third of their savings, including any returns earned, in a single lump sum with no penalties — provided they have been saving for at least ten years. There's no restriction on how the money can be used, though it's expected most people will spend it on housing. Previously, this option only existed within a narrow window between ages 18 and 20.

New Investment Strategy, Lower Fees

At present, before starting to save, participants fill out an investment questionnaire assessing their risk tolerance, which often results in many ending up in conservative funds with low returns. Under the new rules, this mandatory questionnaire will be scrapped, and pension companies will instead be required to offer a so-called life-cycle strategy: the younger the saver, the riskier — and potentially more profitable — the instruments used, with money gradually shifted into conservative assets as retirement approaches.

For people under 50, dynamic investments such as stocks will need to make up at least 75% of the portfolio under this strategy, while alternative funds (real estate, infrastructure, private companies) will be capped at 10%. Savers will still be able to opt out of the standard strategy and choose their own asset allocation.

Management fees will also come down. Currently, providers can charge up to 1% of managed assets per year plus up to 15% of returns earned, while the old transformed funds are capped at 0.8% and 10% respectively. Under the new rules, the asset management fee will not exceed 0.5%, and performance fees will be scrapped altogether. The only exception will be alternative funds, which will keep the current rates of 2.5% for management and 25% of gains — otherwise they wouldn't be able to invest in things like startups.

Old Funds to Close, Mandatory Pension Offers Under Discussion

The transformed funds, created from former pension funds back in 2013 and closed to new savers ever since, are set to be phased out entirely by the end of 2036. Although they guarantee the safety of invested funds, their returns often fail to keep pace with inflation — which is precisely why the decision was made to shut them down. Savers' money will be moved into conservative supplementary pension insurance funds. A ten-year transition period is meant to give people time to adjust, though experts advise anyone with ten or more years left until retirement to switch to higher-yield fund types now rather than wait.

The Finance Ministry also considered requiring employers to offer pension savings plans to all new hires. Employer representatives agreed the idea was heading in the right direction, but no specific wording could be settled on. Finance Minister Alena Schillerová (ANO) said she would back a corresponding amendment in parliament if it turns out simple, clear, and wins unanimous support from employers. The bill still needs to be approved by MPs and signed by the president.

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Source: novinky.cz