How do foreigners provide for elderly? Introduce you to elderly life in Europe

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    May 18, 2023

    How do foreigners provide for elderly? Introduce you to elderly life in Europe

    The Czech Republic is one of few countries in Eastern Europe (along with Slovenia) that does not have a mandatory supplementary pension system. Its public pension system is supported by a "third" pillar voluntary supplementary personal pension savings scheme, which is based on defined contribution (DC).

    How do foreigners provide for elderly? Introduce you to elderly life in Europe

    State pension

    The first component is a Fixed Benefit (DB) pay-as-you-go system covering employees and self-employed. The scheme is administered by Czech Social Security Agency (CSSZ). The system in its current form was introduced by Pension Insurance Law, which came into force in 1996.

    The rate of contributions to state pension system is 28%. Employers pay 21.5% of wages and employees 6.5% of wages. Self-employed people pay 28% of all income. Starting in 2013, employees will be able to contribute 3% of their earnings to a new second pillar pension fund.

    The scheme has two components: a fixed basic pension and an income-based component. The flat fee component provides a basic pension for all eligible citizens. The income component has strong redistributive characteristics. Pensions are calculated on basis of 100% per month up to a maximum of CZK 8400, 30% from CZK 8400 to CZK 20500 and 10% in excess of this amount.

    The private sector is "third pillar"

    Voluntary Supplemental Pension Plans are operated by pension companies that specialize in DC plans. Pension companies are joint stock companies registered in Czech Republic in accordance with provisions of Commercial Code. The purpose of pension company is limited to providing additional pension insurance. Pension companies must be licensed by Treasury Department with consent of Department of Labor and Social Affairs and Securities Commission. Members are allowed to choose between public property managers and private administrators.

    Retirement companies are not allowed to offer more than one pension plan. If members are enrolled in system, they can change their pension as many times as they want, there is no transition fee.

    The minimum age at which contributions can be made from a pension fund is 60, provided that minimum contribution age is regulated by each pension fund. If money is withdrawn from account before this age is reached, corresponding state fee must be returned with additional taxes. Usually, money can be withdrawn in a lump sum or in regular payments.

    The State matches employee contributions according to employee contribution levels. For membership fees from 100 to 199 CZK, state adds 50 CZK plus 40% of membership fees over 100 CZK. If contribution of a member of pension plan is from 200 to 299 kroons, benefit is 90 kroons plus 30% of amount over 300 kroons. 200 crowns. Members whose contributions exceed 500 crowns receive an increase in allowance. gradually.

    Employers can deduct their contributions from their tax base up to 3% of employee's tax base. Employers who contributeabout 5% of their salary are exempt from income tax.

    Under 2013 pension reform, existing supplementary pensions will not be available to new members. Providers can create new funds in new second tier pillar.