Draft law amending some laws in connection with the development of the financial market and with the support of old-age insurance submitted to the Chamber of Deputies
On June 14, 2023, the Government approved a draft law amending some laws in connection with the development of the financial market and with the support of old-age insurance, as amended by the opinion of the Legislative Council of the Government. The bill was submitted to the Chamber of Deputies on 15 June 2023 and is registered as Parliamentary Press 474. The relevant documents are presented to the professional public for information in the version submitted to the Chamber of Deputies.
This proposal contains a set of measures aimed at contributing to the development of the Czech financial market. It follows on from the Capital Market Development Strategy, which was approved by the government in 2019. A similar bill was submitted to the Chamber of Deputies in the last election period, but the legislative process was not completed due to the end of the election period, and now we are presenting the bill again in an amended form.
The main proposed measures are the so-called long-term investment product and some changes in III. pension pillar.
Long-term investment product
- is a collective name for already existing financial products of the investment or savings type that enable the creation of savings for old age.
- It is intended to act as an alternative to the old age security products that are already tax supported today, which are the III products. pension pillar and life insurance.
- the same tax treatment as pension funds and life insurance, provided that certain conditions are met.
- In the long-term investment product mode, it will be possible to register, for example, shares, bonds, shares in an investment fund, balances on bank accounts or hedging derivatives used to cover interest or currency risk.
Changes in III. pension pillar
- It is proposed to introduce a so-called alternative participation fund - it is a new type of fund in supplementary pension savings, which is supposed to be an alternative to existing participation funds with a dynamic investment strategy. In the case of an alternative participation fund, the fee policy and investment strategy should be set more freely, which will enable pension companies to invest more dynamically and achieve a higher valuation for participants.
- The proposal also includes measures to increase the incentive to switch from transformed funds, which are funds from before 2013, to participating funds by allowing parallel participation in both systems. Currently, parallel participation is not allowed, which reduces the motivation of participants to transfer funds from transformed to participant funds. The participants are motivated to stay in the transformed funds in particular by the so-called black zero guarantee, which does not apply in participant funds. However, this guarantee results in transformed funds investing highly conservatively and achieving only very low appreciation for their participants, well below the current rate of inflation. Participant III. of the pension pillar will have to choose which contract (whether for supplementary pension insurance or supplementary pension savings) he will send contributions to and receive a state contribution. He will not be able to pay allowance and receive state allowance for two contracts, but always only for one. Additional pension insurance and supplementary pension savings can be interrupted. In the case of interrupted supplementary pension insurance and supplementary pension savings, the pension company continues to invest the funds (deposited before the interruption) according to the strategy chosen in the contract.
- In the III. pension pillar it is also proposed to make changes in the provision of the state allowance, which aim to motivate the participants themselves to increase their contributions. The provision of the state allowance is currently tied to the participant's contribution, so that the minimum amount of the participant's allowance, at which the entitlement to the state allowance arises, is CZK 300 per month, and the amount of this allowance, above which the state allowance is no longer increased, is CZK 1,000 per month; it is then followed by a tax incentive. In the proposal:
- increases the lower contribution limit from the current CZK 300 to CZK 500 and the upper contribution limit from the current CZK 1,000 to CZK 1,700,
- sets the amount of the state contribution as linear in the amount of 20% of the participant's contribution and
- suggests that people who have been granted an old-age pension will not receive the state allowance. This modification is based on the idea that products III. of the pension pillar are not intended to serve as a means of short- or medium-term appreciation of funds with state support, but are intended to serve as a long-term postponement of consumption in order to mitigate any drop in income that may be associated with retirement.
Other changes
Other proposed changes include:
- support for the use of the XML format by bailiffs when requesting cooperation from financial institutions,
- the introduction of new information requirements for corporate bonds without a prospectus or
- adjustment of compensation calculation in case of early repayment of consumer loans.