KB Pension Company (KBPC) is one hundred per cent owned by Komerční Banka, one of the largest banks on the Czech market and a member of the Société Générale group. With nearly 570 thousand participants, it is among the most prominent pension companies in the Czech Republic. KBPC has been awarded the prestigious prize Best Pension Fund in the Czech Republic by Global Banking & Finance Review portal as well as the World Finance magazine in 2011 and 2012.
“Our ambition is to remain a leader in pension savings in the Czech Republic. Both complex advisory in pension provision and a wide offer of products in the second and third pillars of the pension system are essential to maintaining our leading position on the market,” says Pavel Jirák, CEO of KBPC and a member of the presidium of the Czech Pension Association. The potential exists, as more and more Czechs have begun assuming personal responsibility for retirement savings. Jirák adds, “The wide publicity of pension reform has led more Czechs to consider how they will finance their retirement. Many have realized that it is very irresponsible to rely on the state and its ability to pay pensions over the coming twenty or more years. I believe that the reputation of the second pillar is gradually improving and that it will become a standard tool for pension savings in the Czech Republic.”
The realization of pension reform in the Czech Republic was not at all easy: It had little support in parliament, was vetoed by President Václav Klaus and faces the ongoing threat of repeal if opposition parties win the next parliamentary elections. Inadequate promotion of pension reform weakened the trust of Czechs in the newly implemented system at a time when responsible pension savings in private funds are crucial, in view of developments in public finance and the demographic curve.
“A reform of such fundamental importance deserves, as a matter of course, support across the political spectrum. Such reform, however, is always difficult to push through. The governing coalition learned well from similar reforms in other central and eastern European countries during recent years, and therefore proposed moderate second pillar parameters,” says Jirák.
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Reform of the Czech Pension System
Until the end of 2012, the pension system in the Czech Republic rested upon two basic pillars:
1) the first PAYG pillar, whose resources for the payout of state pensions are generated from mandatory payment of pension insurance by persons and employers at a total of 28% of gross earnings, and;
2) the third pillar, a voluntary pension insurance with state contribution and the possibility of tax breaks and employer contributions.
As of 1.1.2013, pension reform ushered in parametric changes to the mandatory first pillar, transformation of the voluntary third pillar and the creation of the new voluntary second pillar. The goal of changing the pension system was to offer more means to financially safeguard retirement savings and motivate Czechs to invest responsibly.
Newly implemented savings in the second pillar offered by pension companies are embodied in partial opt-out from the first pillar, allowing participants to re-direct 3% of social insurance payments into the second pillar with the expectation that an additional 2% will be contributed from gross employee earnings. Various investment profiles may be chosen and, depending on the age of the participant, dynamic, balanced or conservative investment selected.
It is realistic to expect that 700 thousand to one million Czechs will enter the second pillar.
Changes in the Third Pillar
Important changes have also been made to the third pillar. 5 million current participant contracts were transferred to so-called transformation funds. All contract conditions were honored, including the guarantee on return of participant resources invested. It is no longer possible to enter into transformation funds and new participants must now invest in new funds, under different regulations.
Third pillar savings products are considered to be among the top financial products on the Czech market. Participants may receive a monthly state contribution of up to CZK 230 – approximately EUR 9 – as well as decrease taxable income base and receive employer contributions.
KBPC offers products in both voluntary pillars of the reformed Czech pension system, to potential participants as well as domestic or foreign investors
KBPC prefers for its participants three typified life cycle strategies, all suitable for long-term pension savings. Growth, balanced and conservative strategies are based on a combination of individual funds with varying levels of risk.
Participants may opt to leave the alignment and administration of overall strategy to KBPC, which offers overall portfolio solutions for the entire investment period as well as strategies by which investment portfolios will be managed.
Participants are offered a complex benefit program including spa and relaxation programs, discount cards to be used in a large network of businesses and, in addition, professional advisory service both at www.kbps.cz and at the KBPC call center.