Changes to pension savings from 2024

Are you saving for your retirement with government help? There are significant changes to pension saving in 2024. The government is coming up with an increase in the state contribution or higher tax relief.

The main reason for the new measures is to encourage people to make higher deposits, which will lead to a better level of private provision in retirement. Supplementary pension savings are becoming a key instrument in terms of state support.

Main changes to pension savings from 2024:
  • Increase in the minimum deposit to qualify for the state contribution to CZK 500 per month
  • Increase in the maximum state contribution to CZK 340 per month
  • Extension of the minimum savings period to 10 years
  • Higher tax relief – up to CZK 48,000 can be deducted from the tax base
  • Termination of the state contribution for persons receiving a retirement pension

Another change that 2024 will bring is the possible concurrence of supplementary pension insurance and supplementary pension savings contracts.

Other changes concern child contracts. In addition, young clients can apply to their pension company for a partial withdrawal allowance, i.e. payment of part of the money saved. From the new year, they will have more time to do this – 24 months from the age of 18.

An individual (taxpayer) can deduct contributions to all tax-supported retirement savings products and tax-supported long-term care insurance together up to CZK 48,000 per year from the tax base.

Also exempt from income tax are contributions paid by the employee’s employer to a tax-supported retirement savings product or tax-supported long-term care insurance, again up to a total of CZK 50,000 per year.

The law will now allow pension companies to create an “alternative fund“. Through it, people can invest in areas that were not previously allowed under pension savings. These include:

  • Real estate,
  • cryptocurrencies,
  • private equity funds,
  • commodity derivatives,
  • intellectual property rights,
  • transport infrastructure.

The amendment also removes the possibility of drawing a pension from part of the funds while maintaining an active contract. From January 2024, monthly payments will be linked only to the drawdown of all the funds saved.

Two new retirement savings products will be created

1. A long-term investment product

2. Long-term care insurance

Long-term investment product

A Long Term Investment Product (LTIP) is the collective name for investment or savings products that help provide security in old age and may now have tax support.

A DIP is created by a contract between the consumer and the DIP provider in which the DIP is negotiated. No existing investment or savings contract automatically becomes a DIP. A DIP can only be negotiated from 1 January 2024.

Who can provide a DIP?

  • bank
  • savings and credit cooperative
  • securities dealer
  • investment company
  • self-managed investment fund
  • a similar foreign person authorised to provide its services in the Czech Republic

The DIP provider must be registered in the list of DIP providers maintained by the Czech National Bank or risk a fine.

What can be in a DIP?

  • cash (funds in a savings account, fixed deposit, etc.)
  • shares and bonds traded on the stock exchange, including foreign ones, or government or covered bonds (e.g. mortgage bonds) from EU countries
  • share certificates
  • derivatives used to hedge currency or interest rate risk.

Under what conditions can DIPs qualify for a tax deduction?

In order to qualify for tax relief, two conditions must also be met, namely that the withdrawal from the DIP does not take place until after:

  • 10 years (i.e. 120 months) after the creation of the DIP; and
  • the taxpayer reaches the age of 60.

A withdrawal from a DIP is not considered to be a situation where all the funds from a terminated tax-supported DIP are transferred to another DIP. In other cases, the taxpayer loses the tax benefit and has to pay it back (up to 10 years in arrears) for the years it was used – even if it is a withdrawal of a single crown from the DIP.

Long-term care insurance

Long-term care insurance is insurance for helplessness that requires recurring assistance from another person to provide at least some of the insured’s basic needs. This can be any person (for example, a nurse or a family member).

It is an insurance where the insured event is the dependence of the client who has taken out the insurance or his/her close person on the assistance of another person due to a long-term adverse health condition corresponding to dependence level III or IV according to the Social Services Act. It may also be a claims-made insurance with an agreed benefit in the form of the provision of care for the policyholder throughout the period of his or her dependency corresponding to dependency level III or IV under the Social Services Act or reimbursement of the cost of such care.

People will be able to deduct the premium from their income tax base up to CZK 48 000 per year. The new institution is intended to provide more sources of money for people who need long-term care or personal assistance.