BRATISLAVA, May 9, (WEBNOVINY) — Draft amendment to the law on old-age pension saving, which the Ministry of Labor and Social Affairs has submitted for interdepartmental review, assumes gradual compulsory transfer of pension savings in the second pension pillar to the guaranteed bond fund depending on saver’s age. “This measure eliminates a significant drawback of the existing legislation, namely the transfer of the whole saved sum at once,“ stated the ministry. Gradual compulsory transfer of sources to the bond fund is to be spread over a ten-year period and should start after savers reach the age of fifty. The proportion of pension savings bound to be placed in the bond fund is to increase 10 percentage points annually up to final 100 percent after the age of 59. Under the currently effective legislation, savers cannot be in a growth fund after the age of 47 and after the age of 55, they cannot remain in the balanced pension fund either. The monitoring period for comparing performance of individual funds should be extended from current six to sixty months in the bond pension fund, which is to be currently existing conservative fund under a changed name.
Young people who enter the labor market and enroll in the pension saving scheme for the first time, which also implies automatic entry in the second pension pillar, should have 180 days to seal a contract with one of pension fund management companies, as of the beginning of next year. This concerns people who are employed for the first time, self-employed persons obliged to take up pension insurance, voluntary pension insurance policy holders and state policyholders during parental leave or while drawing special allowance for child care. If they do not choose a pension fund management company on their own during this period, the social security provider Socialna Poistovna will assign them one alternately according to the alphabetical order.
Young savers should have 730 days after the automatic entry in the second pension pillar to decide on exiting the capitalization pension pillar. Decision on exiting pension saving in the second pension pillar with an officially certified signature is to be delivered to Socialna Poistovna. The Labor Ministry also suggests that young people be exempt from charges for transfers between pension fund management companies during the first two years since their automatic entry in second [capitalization] pension pillar.
Guarantees in balanced and growth pension funds in the second pension pillar are to be abolished as of next year. “The novelty will motivate pension fund managers to appreciate savers‘ finances,” Labor Minister Jozef Mihal told journalists Friday. His department suggests a new index fund and changes to evaluation of fund returns. If they want, savers will be able to put their money into the conservative fund, whose guarantees will be preserved, according to Mihal. Mihal also wants to facilitate the possibility to divide savers’ pension savings in two funds under condition that one of the funds will be a guaranteed conservative fund.
The existing conservative fund will be called bond fund and, as the minister says, the new name will better reflect investing strategy within this fund. The change in fund valuation should enable purchase of securities of longer maturity with higher potential returns. Existing guarantees in conservative funds will remain preserved. The balanced fund will be renamed to mixed fund and guarantees in this fund will be scrapped. The growth fund will be labeled equity fund and guarantees in this fund should also be abolished. “In contrast to the mixed fund, the portion of equities in this fund should be higher,“ Mihal remarked on the equity fund concept. The brand new index fund is to focus on stock markets and follow suit the performance of the selected stock index or a basket of stocks. There will be no guarantees in this fund, either.
Fees for pension fund administration in the three existing funds will remain at 0.3 percent of the average annual net value of assets in the given fund but the fee for returns in the bond fund will be canceled.
The tabled amendment to the law on on-age pension saving should take effect as of October 1 of this year. Pension fund management companies should be obliged to send clients who are saving in other than a conservative fund a written notification on cancellation of guarantees in their pension fund by the end of October. The letter will contain the information that if savers wish their pension savings to be guaranteed, they can transfer them to the bond pension fund where guarantees will be preserved,” underscored Mihal.
SITA