The move
The Czech state is promoting a maneuver for the elderly population. Deputies voted to approve a law aimed at supporting long-term retirement investments and facilitating the development of the financial market. The legislation includes the introduction of a new financial instrument, the Long-Term Investment Product (DIP), which offers individuals the opportunity to deposit their funds with tax benefits provided by the state.
Those who invest in financial products such as bank deposits, mutual funds, state and corporate bonds, and stocks (excluding derivatives and hedge funds) can deduct up to CZK 48,000 from the tax base as early as 2024. This will result in annual tax savings of up to CZK 7,200. In order to withdraw the accumulated savings, it will be necessary to maintain investments for at least 10 years (an increase from the previous five-year period) and reach at least age 60.
Czech citizens can benefit from the tax deduction up to the maximum limit either if they are saving exclusively for the new product or if they combine the DIP with existing forms of retirement savings, such as life insurance with a savings component, supplementary pension insurance, or supplementary retirement savings.
The law must now go through the Senate approval process and then be signed by the president to take effect on January 1, 2024.
The benefits for savers
“The DIP will introduce flexibility into the third pillar, expanding the possibilities beyond current pension funds and investment life insurance. The new options will make retirement savings more attractive, especially for younger generations, who require a wider range of supported products. Starting in January next year, investors will have access to completely new opportunities to invest in regulated products for their old age, such as publicly traded stocks or bonds, investment funds, and even bank accounts,” explains Jana Brodani, executive director of the Capital Market Association of the Czech Republic (ACACIA). “At the same time, it should be stressed that this is an option and not an obligation, so it is up to each individual to decide how to act,” Brodani adds.
Another interesting aspect of investing in DIP, just as with life insurance and retirement savings, is the possibility of an employer contribution of up to CZK 50,000 per year, with exemption from social and health insurance payments for such contributions. This means that if an employer provides the employee with CZK 50,000 per year, exempt from taxes or fees, to invest in DIP, the employee will receive virtually twice the amount he or she would have received as net salary after taxes and fees. This annual difference represents a significant advantage in terms of investment and potential returns in the context of planning for old age.
Patria Finance, responsible for managing investments of more than CZK 70 billion for more than 50,000 Czech investors, is ready to offer long-term investment accounts as soon as possible. Patria Finance CEO Richard Podpiera emphasizes the growing interest of their investors regarding this issue. He sees the DIP as a pathway that reinforces individual responsibility and puts investments on an equal footing with existing savings avenues to secure the future. Podpiera highlights the importance of the DIP in distributing funds intended for old age over a wider range of assets, reducing risk through diversification while simultaneously allowing investment in better performing assets, such as equities, thus paving the way for a more attractive long-term prospect of appreciation. Podpiera is convinced that the managed assets will benefit the Czech financial market and, as a result, the entire national economy.
The supports
Lawmakers also agreed on increased support for amounts deposited regularly for retirement savings. Until now, each Czech citizen could receive a maximum of CZK 230 per month from the state with a monthly deposit of at least CZK 1,000; now this amount has been increased to CZK 340 per month. However, a minimum monthly savings of CZK 1,700 is required to qualify for this support in retirement savings.
Source : https://www.seznamzpravy.cz/
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