Czech ministry proposes slashing pension fund fees, boosting equity allocations
Overview of Proposed Pension Fund Reforms in the Czech Republic
PRAGUE, June 3 (Reuters) - The Czech Finance Ministry plans legal changes to cut fees charged by private pension funds and boost equity investments to improve long-term returns, minister Alena Schillerova said on Wednesday.
About 4 million Czechs use funds run by nine private fund managers, but participation has been declining and returns have been weak due to conservative strategies and fees.
Main Proposals and Fee Structure Changes
The main proposal for the system, which manages around 660 billion crowns ($32 billion) in assets, would scrap performance fees on capital gains and set management fees at 0.5% of assets. Current fees are 0.4% for most conservative funds and 1% for others.
Expected Impact on Returns
Schillerova said the changes would have a major impact on long-term returns. "There is no reason for fees to be among the highest in Europe," she told a news conference.
Industry Response
The plan was criticised by industry group APS, which said slashing the fees would make running funds "untenable" in medium to long-term.
Encouraging Equity Investments and Early Saving
Another proposal would guide clients to put a larger share of savings in equities at a younger age to boost long-term returns versus bonds and money market instruments.
Doubling State Subsidies for Children’s Accounts
The ministry also plans to double state subsidies for accounts set up by parents for children to encourage early saving, she said.
Economic Analysis and Projected Outcomes
Economists Filip Pertold and Lukas Nadvornik from the CERGE-EI research centre of the Charles University and Academy of Sciences, whose analysis underpinned the proposals, said the current setup can cost a typical long-term saver more than half of their savings.
Potential Benefits of the Reform
Cost Reduction and Increased Payouts
The plans, which require cabinet and parliamentary approval, would cut that cost to less than one-fifth and could triple pension payouts after 35 years compared with the current system, they said.
Background: Czech Pension Fund Management
Licensed Czech pension funds are run by major banks, international insurers and other asset managers.
($1 = 20.8400 Czech crowns)
(Reporting by Jan Lopatka. Editing by Mark Potter)
