Czech ministry proposes slashing pension fund fees, boosting equity allocations
The Czech Finance Ministry plans legal changes to cut fees charged by private pension funds and boost equity investments to improve long-term returns, minister Alena Schillerova said on Wednesday.
About 4 million Czechs use funds run by nine private fund managers, but participation has been declining and returns have been weak due to conservative strategies and fees.
The main proposal for the system, which manages around 660 billion crowns ($32 billion) in assets, would scrap performance fees on capital gains and set management fees at 0.5% of assets. Current fees are 0.4% for most conservative funds and 1% for others.
Schillerova said the changes would have a major impact on long-term returns. “There is no reason for fees to be among the highest in Europe,” she told a news conference.
The plan was criticised by industry group APS, which said slashing the fees would make running funds “untenable” in medium to long-term.
Another proposal would guide clients to put a larger share of savings in equities at a younger age to boost long-term returns versus bonds and money market instruments.
The ministry also plans to double state subsidies for accounts set up by parents for children to encourage early saving, she said.
Economists Filip Pertold and Lukas Nadvornik from the CERGE-EI research centre of the Charles University and Academy of Sciences, whose analysis underpinned the proposals, said the current setup can cost a typical long-term saver more than half of their savings.
The plans, which require cabinet and parliamentary approval, would cut that cost to less than one-fifth and could triple pension payouts after 35 years compared with the current system, they said.
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