Today, we’re going to take a look under the hood of the new and the old penzika.
And especially for this:
- What they have in common and where are the differences
- What are their valuations
- How to decide whether one or the other
- Procedure for transferring from old to new
We have already discussed why we should save for old age in the article “Penzijko – clearly, concisely and succinctly!“.
So let’s skip this part and get straight to the point.
For the purposes of this article, I use the terms “old” and “new” pensions. The correct names are Supplementary Pension Insurance and Supplementary Pension Savings.
In 2013, when the then government unsuccessfully attempted to introduce pension reform, the old Pension Insurance Fund became the Transformed Funds, which continue to operate normally. So from 1 January 2013 you could only arrange the new Supplementary Pension Savings – Participation Funds.
What they have in common and where are the differences
Whether you have an old pension or a new one, you can send your contribution to it and then get a state contribution on top of it. You can then deduct up to CZK 24,000 per year from your monthly deposit over CZK 1,000. Similarly, both options allow for an employer contribution. It is important to note that you will no longer receive a state contribution in return for the employer contribution. You can then withdraw the saved funds from 60. year of age regardless of your retirement age.
Retirement pension
With the old pension, it was possible to withdraw half of the accumulated money after 15 years of saving (i.e. 180 months with a contribution). This is no longer allowed by the new pension.
Guarantee
While the pension company must guarantee a non-negative appreciation every year for the old pension, it no longer has to do so for the new one. This may result in a loss year-on-year. On the other hand, it gives the pension company more opportunities to value the money, as we will show below with specific historical figures.
Front door
The abolition of the retirement pension has been replaced by the possibility of drawing the so-called “retirement pension”. the front porch. This option is useful if you lose your job before retirement or are no longer medically fit. If you have saved enough money for your pension, you can start drawing a pre-retirement pension 2 to 5 years before your retirement age. The way it works is that you have a monthly annuity paid to you from your own saved money and the state pays for your health insurance. The advantage is that, compared to early retirement, the early retirement pension has a very minimal effect on the amount of the subsequent retirement pension. On the other hand, you collect money intended to compensate for a low income.
Evaluation
Below we show the valuation of the transformed funds of the old Pension insurance in the last 5 years. If you still have an old pension and you look at your annual statements, the following low numbers won’t surprise you.
On the other hand, the new pension allows you to trade your savings on the capital markets. Although the funds have seen a decline due to the situation around COVID, they have significantly outperformed the old penzijko over the period of their operation. Each pension company allows you to choose an investment strategy from conservative to dynamic. Below is an evaluation of the most successful(dynamic) ones.
Keep the old or switch to the new?
In this regard, I would be guided primarily by your investment horizon. If you have more than 10 years to go before you plan to take your pension, I would definitely consider switching.
Procedure for transferring from old to new
If you want to stay with your current pension company, switching is quite easy. Simply open a new pension and fill in the transfer form. You don’t lose anything in the transfer.
At the same time, if you would like to change pension companies because you don’t like their current performance, you will need to take the additional step of setting up a contract with a new pension company and completing another transfer form.
Be sure to have a financial advisor help you with this administrative burden.
Conclusion
The main thing you should take away from today’s article is that you should not only prepare for old age, but also think about how you want your money to be handled over the years. Over time, the difference can be in the hundreds of thousands to millions.
If you have any questions about this topic, I will be happy to discuss them with you.
