The reform of the pension insurance system in the Slovak Republic, which was prepared by legislative changes in 2004, was launched on January 1, 2005.
The reform of the pension insurance system in the Slovak Republic, which was prepared by legislative changes in 2004, was launched on January 1, 2005. The purpose of the reform is to transform the current pay-as-you-go system (the so-called “first pillar” pension insurance system) and to introduce a mandatory defined contribution system for old age pensions (second pillar). The aims are to secure the financial stability of the entire pension insurance system, to lessen redistribution, and to cope with the country’s negative demographic development.
Eligibility, contributions and fees
New workers entering the workforce are obliged to sign on to the new second pillar system. Others can opt to enter the second pillar (or not) up to June 30, 2006.
Contributions amount to 18% of the assessment basis (monthly taxable income for employees, and 50% of the monthly tax assessment basis of self-employed persons).
For those entering, the second pillar contributions are split into two parts: 9% goes to the pay-as-you-go pension fund maintained by the Social Insurance Company (SP) and the other 9% to the chosen pension asset management company (DDS). Accordingly, members will receive their pensions from both sources. The annuity from the second pillar will not be provided by the DDS itself, but will be purchased from a commercial life insurance company.
Those not entering the second pillar will contribute 18% to the pay-as-you-go system and will thus receive their pension only from the SP.
The SP is also responsible for the central collection of contributions and their distribution to asset management companies. The SP will keep 0.5% of the amount paid to cover expenses related to this. The DDS will keep 1% of the monthly contribution as a maintenance fee for the pension savings account, and is allowed to keep a monthly asset management fee of up to 0.07% of the net value of assets.
Asset management companies
To date there are eight DDS companies operating in the market with about 30,000 pension insurance agents. However, to keep its licence, each DDS is required to enrol a minimum of 50,000 contributors by June 30, 2006. So far, with the possibility of signing contracts from January 1, 2005, three meet the conditions. The first payments to personal savings accounts are expected in March 2005.
Each pension asset management company is allowed to set up a maximum of three pension funds: “conservative”, “balanced” and “growth”, with different permitted investment strategies. All pension funds must respect the investment limits for asset allocations (type of security, issuer, territorial structure of investment portfolio, etc.).
Key date June 30, 2006
The reform of the Slovak pension insurance system was launched successfully with no major technical or other problems. There have been large advertising campaigns by asset management companies and so far, more contributors have signed up with them than was expected by the authorities. This phase of the reform will last until June 30, 2006, after which the total number of contributors and which DDSs will be permitted to keep their licences, will be made known.
For more information, please visit www.koop.sk
Eligibility, contributions and fees
New workers entering the workforce are obliged to sign on to the new second pillar system. Others can opt to enter the second pillar (or not) up to June 30, 2006.
Contributions amount to 18% of the assessment basis (monthly taxable income for employees, and 50% of the monthly tax assessment basis of self-employed persons).
For those entering, the second pillar contributions are split into two parts: 9% goes to the pay-as-you-go pension fund maintained by the Social Insurance Company (SP) and the other 9% to the chosen pension asset management company (DDS). Accordingly, members will receive their pensions from both sources. The annuity from the second pillar will not be provided by the DDS itself, but will be purchased from a commercial life insurance company.
Those not entering the second pillar will contribute 18% to the pay-as-you-go system and will thus receive their pension only from the SP.
The SP is also responsible for the central collection of contributions and their distribution to asset management companies. The SP will keep 0.5% of the amount paid to cover expenses related to this. The DDS will keep 1% of the monthly contribution as a maintenance fee for the pension savings account, and is allowed to keep a monthly asset management fee of up to 0.07% of the net value of assets.
Asset management companies
To date there are eight DDS companies operating in the market with about 30,000 pension insurance agents. However, to keep its licence, each DDS is required to enrol a minimum of 50,000 contributors by June 30, 2006. So far, with the possibility of signing contracts from January 1, 2005, three meet the conditions. The first payments to personal savings accounts are expected in March 2005.
Each pension asset management company is allowed to set up a maximum of three pension funds: “conservative”, “balanced” and “growth”, with different permitted investment strategies. All pension funds must respect the investment limits for asset allocations (type of security, issuer, territorial structure of investment portfolio, etc.).
Key date June 30, 2006
The reform of the Slovak pension insurance system was launched successfully with no major technical or other problems. There have been large advertising campaigns by asset management companies and so far, more contributors have signed up with them than was expected by the authorities. This phase of the reform will last until June 30, 2006, after which the total number of contributors and which DDSs will be permitted to keep their licences, will be made known.
For more information, please visit www.koop.sk