The Czech government is introducing a new savings product from 2024. The expectation is that the proposed Long Term Investment Product (DIP) will encourage more people to increase the amount they invest for retirement and the product is to be available from 1 January 2024.
While it is not labelled as a pension, the DIP will be treated the same as supplementary pensions and life insurance products. These tax advantages should encourage people to invest in both public listed companies as well as ETFs and bonds.
The Tax Benefits
Contributions of up to CZK 4,000 a month will reduce the personal tax base by CZK 48,000 a year- resulting in a CZK 7,200 a year savings in tax (at 15%). However, there will not be a State Contribution that is payable alongside pension contributions. It is often this State Contribution that is the driver to get savers to start pension contributions.
Further, an employer will be able to make up to CZK 50,000 a year in contributions on behalf of employees, without having to pay social taxes and health insurance. This could be seen as a valuable employee benefit and, of course, the employer will be able to claim corporation tax relief on those contributions.
Conditions of the contract
This is a long-term investment that is supposed to run for 10 years or more, without the possibility of withdrawing funds prior to the age of 60 or the investor will lose all the tax benefits- retrospectively. Exceptions will be a transfer to another DIP provider and disability.
As yet, it is not clear as to how the funds will be paid on maturity of the investment or whether there will be any compulsion to buy an annuity.
How can I buy a DIP?
Regulated securities dealers, investment companies or banks, will be able to offer DIPs and the Czech National Bank will register those that will be able to sell them.
Whether the DIP becomes a success remains to be seen. However, given the tax incentives for both individuals and companies, the DIP must surely be high up the list of considerations for those looking to provide an increase in retirement savings.
Contact Aisa International for more information; they are happy to discuss this topic in more detail.