News - Czech Republic

Czech Republic - May 2013

Pension reforms overview and reminder

New legislation on pension reforms came into effect on 1 January 2013. Those over 35 who wish to participate in the second ‘pillar’ have until 30 June 2013 to decide.

State Pension System

The mandatory state social security (pension) system, also referred to as "the first pillar", into which every worker and his/her employer must participate, remains unchanged with the exception of an increase in the maximum assessment base for calculating social security contributions. The main changes brought by the new legislation are the launch of the pension system’s second and third pillars.

New Second Pillar

The second pillar of the Czech pension system, also called "savings for old-age pension", allows participants of the mandatory first pillar to voluntarily apply for and participate in the second pillar and subsequently contribute to their future pension in the form of extra contributions. These contributions are remitted to and administered by a private pension institution chosen by the worker. Individuals who choose to participate in the second pillar cannot subsequently change their minds; they must participate until they reach the age to receive their pension. All individuals older than 35 years, who decide to participate in the second pillar, must apply for it by 30 June 2013 at the latest.

Supplementary Pension Savings

The third pillar of the pension system, known as "supplementary pension savings", replaces the existing system of supplementary pension insurance with state contributions. The third pillar is a completely voluntary system for all individuals older than 18. They may subscribe to a supplementary pension savings with any pension institution which has a valid licence from the Czech National Bank. Individuals participating in the third pillar system continue to remain eligible for certain tax benefits associated with contributing to this system, in particular in the form of either a tax exempt employment benefit or tax deductible item from their tax base.

For further information or to discuss any of the issues raised, please contact Mr. Jan Bürger on +420 221 430 111 at PRK Partners, Prague - www.prkpartners.com

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

Circular 230 disclosure

To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Copying

If you would like to copy or otherwise reproduce this article then you may do so provided that: (1) any such copy or reproduction is for your own personal use or if it is made available to any third party it is done so on a free of charge basis; and (2) the article is reproduced in full together with the contact details, disclaimer and any logos as they appear on each article.