Ministry proposes pension fee structure

The Finance Ministry has released a proposal for fee payments on private pension funds as a part of the larger pension reform package currently under discussion in Parliament.

The proposal, which the ministry has put forward for feedback from the public until April 5, lays out a choice of four management fee structures for those who choose to opt out of part of their state pension by diverting 3 percent of their social security payments into private pension funds. Each option has rates that vary depending on the risk level of the assets under management, with four risk categories established by the Finance Ministry, and that drop after five years.

The first option requires an annual fee of 0.7 percent to 1.5 percent of managed assets depending on risk profile. The second calls for a 1 percent one-time fee and an annual fee of 0.5 percent to 1.3 percent. The third variant takes a maximum 5 percent of the gains with a 0.5 percent to 1.1 percent annual fee. The last option has a 0.3 percent to 0.8 percent annual fee and takes 10 percent of the gains.

Despite these options, some analysts say the structure of management fees is a moot point when other key aspects of the pension reform plan are still undecided. Markéta Šichtařová, director and analyst at Next Finance, said if consumers don't know how their state pension will be affected by their participation in second-pillar private funds, they can't make an informed decision as to whether to participate.

"To enable individuals to decide whether or not to participate in the second pillar, they must decide what is more advantageous for them financially," Šichtařová said. "They have to answer the question 'Is it better for me to stay in the system and maximize my state pension, or is it better for me to lower my state pension and speculate that the funds will amount to more money than I lost from the first pillar?' "

Šichtařová said to answer this question, consumers have to know how their state pensions will be recalculated - information she says is not yet known. She also emphasized how crucial the decision is.

"If someone decides to participate, they lose the option of leaving the system and will have to remain in it until death," she said.

In addition to the confusion for individual consumers, existing private pension funds are also hesitant to throw their support behind the reform. So far, ČSOB is the only company offering private pension funds that has expressed interest in providing their funds as part of the second pillar.

"Everything is still in the analysis phase, and because we don't have all the information, it's not possible to make any decisions," Tomáš Matoušek, general manager of Česká pojišťovna's pension fund, told the Czech News Agency. "It will also depend on the results of the political debate and the amount of consensus."

Emily Thompson can be reached at
ethompson@praguepost.com