Main features third pillar

What is the supplementary pension scheme?

The supplementary pension scheme – the third pillar of the Slovak pension system – is a voluntary form of long-term pension saving (although enrolment is compulsory for people working in certain hazardous occupations). The scheme is based on the collection of contributions from participants and employers and the earning of returns on those contributions, so that participants can receive a supplementary pension income in old age or upon the termination of their employment in a hazardous occupation or the occupation of a dance artist or wind instrument musician.

Who are participants under third pillar and how do they enrol?

• A participant under the voluntary third pillar is an employee or other natural person who is at least 18 years of age and has concluded a supplementary pension scheme agreement with a supplementary pension management company (‘a participant agreement’).
• For people employed in an occupation that is classified as hazardous (an occupation classified by a decision of the government health authority as category three or four, or the occupation of a dance artist or wind instrument musician), enrolment in the third pillar is mandatory. Within 30 days after commencing their employment, such employees are required to conclude a participant agreement and, within the same period, their employer is required to conclude an employer agreement with the supplementary pension management company (SPMC) that the employee opts to save with. Employers’ contributions to employees’ third-pillar savings cannot be less than 2% of the assessment base. These employees have the option of whether or not to contribute to their future third-pillar pension.
• For participants, enrolment in the third pillar includes selecting a supplementary pension management company and selecting a supplementary pension fund that has a specific investment strategy commensurate with the degree of risk and potential return.

Accumulation phase

• In the accumulation phase under the third pillar, the participant and employer pay contributions to the participant’s supplementary pension savings. An exception is where the participant is employed in a hazardous occupation, in which case the employer is required to pay the contributions and the employee has the option of whether or not to contribute. Contributions are credited on a monthly basis to the participant’s personal account managed by the participant’s supplementary pension management company. The amount of the monthly contribution is set as a percentage rate of the employee’s net salary or as a fixed amount in euro.
• The contributions from a participant and the participant’s employer are collected in the selected third-pillar pension fund and become part of the assets of that fund. The SPMC invests the assets with the aim of earning a return. Besides being supervised by the SPMC as the fund’s manager, each operation and transaction involving the assets is also supervised by the fund’s depository and by Národná banka Slovenska.

Decumulation phase

From a participant’s savings in a third-pillar pension fund, the SPMC undertakes to pay the participant a supplementary pension provided that the conditions laid down by law and in the participant agreement or benefit plan have been met. After their accumulation phase has ended, participants become entitled to the payment of a third-pillar pension in any of several ways.

Participants who concluded their participant agreement

• by 31 December 2013 remain entitled to the payment of pension benefits in accordance with their benefit plan (they still have a benefit plan); benefits are payable in the following ways:

1. as a supplementary retirement annuity or a temporary supplementary retirement pension;
2. as a supplementary service annuity or a temporary supplementary service pension;
3. as a lump sum;
4. as a termination settlement.

• after 1 January 2014, or in cases where the benefit plan is cancelled by an addendum to the participant agreement, the payment of benefits is governed by the Supplementary Pension Act (No 650/2004); benefits are payable in the following ways:

1. as a supplementary retirement annuity or a temporary supplementary retirement pension;
2. as a supplementary service annuity or a temporary supplementary service pension;
3. as a lump sum;
4. as an early withdrawal.

Advantages of the supplementary pension scheme

• Employer’s contribution – With their employer’s financial contribution, participants can save more and diversify their pension income.

• Tax relief – Participants who concluded their participant agreement after 1 January 2014 may have third-pillar contributions of up to €180 per year deducted from their tax base. This tax advantage is also available to participants whose participant agreement was concluded before 1 January 2014, if they have cancelled their benefit plan by an addendum to the agreement.

• Succession under the third pillar – The current value of a participant’s personal account under the third pillar constitutes private property which becomes succession property if the participant dies while in the accumulation phase of the scheme or while receiving a temporary supplementary retirement pension or a temporary supplementary service pension. Succession only occurs if another person is not designated in the participant agreement as the beneficiary of the savings in the participant’s personal account.

• Simplicity and flexibility of savings management – Third-pillar participants can choose to invest in one or more accumulation pension funds managed by their selected SPMC. They can switch funds and change the level of their contributions. Via their SPMC’s online applications, they can quickly and easily access information about their third-pillar agreements and savings and about services provided by the SPMC.