Draft:Pensions in Slovakia

After an extensive pension scheme reform introduced in 2003, the Slovak pension system is comprised of three independent systems (i.e. three pillars):

• Pension insurance (1st pillar), which is administered by the Social Insurance Agency (Slovak: Sociálna poisťovňa)
• Old-age pension scheme (2nd pillar) that works on the basis of a funded defined contribution scheme, where the pension saving are administered by pension fund management companies (PFMCs)
• Voluntary supplementary pension scheme consisting of two components:
  • Supplementary pension scheme (3rd pillar) - a defined contribution scheme made up of the collection of contributions from participants and their employers that is managed by supplementary pension companies
  • Pan-European personal pension product (PEPP) - an EU-wide personal pension scheme offering all EU citizens an additional option of retirement savings

Pension insurance (1st pillar)

The system of pension insurance (the so-called "1st pillar") is a benefit-defined system funded on an ongoing (PAYGO) basis. The essence of the 1st pillar lies in the fact that it is closely interconnected with economic activity and income of citizens.

The positive link between the amount of payments to the system and the amount of benefits received is a clear manifestation of the merit principle of this system - the amount of benefits the ensured person is entitled to hinges on the paid insurance premium, which is the main source of financing for the system of pension insurance.

Pension insurance comprises two independent, separately financed subsystems, which are managed by the Social Insurance Agency:

• old-age pension insurance, which is designed to ensure a steady stream of income in post-retirement age and in the event of death
• disability insurance, which serves in the case of decline of the ability to earn income due to long-term unfavourable health condition of the insured and in the event of death

Pension insurance is mandatory insurance and participation in this system is prescribed by law for eligible persons. The law, however, also allows for a voluntary pension insurance.

Old-age pension scheme (2nd pillar)

The old-age pension scheme (the so-called "2nd pillar") is a contribution-defined system financed by capitalization, which is administered by pension fund management companies (PFMCs) (Slovak: dôchodkové správcovské spoločnosti (DSS)).

Old-age pension scheme, together with pension insurance (1st pillar), form the fundamental system of pension security and hand-in-hand guarantee a stream of income for the beneficiary after reaching retirement age and for their family in the event of death of the beneficiary.

Upon entrance to the 2nd pillar, the mandatory contributions to the pension insurance, whose magnitude is 18% in total, get split into two parts in a way that is prescribed by law.

The beneficiaries , therefore, receive their pension from two sources - with the first one being the adequately reduced pension from the 1st pillar, which is paid by the Social Insurance Agency, and the second one being the pension coming from the 2nd pillar, the size of which depends on the extent of contribution payments, their appreciation, and on the selected method of drawing the pension from the old-age pension scheme.

Old-age pension scheme consists of two main phases:

• the saving phase - where a part of mandatory contributions of the saver is transferred to their personal pension account that is managed by the pension fund management company of their choice. In this phase of the old-age pension scheme, the savers can freely choose not only the PFMC, but also pension funds, in which they want their contributions to appreciate. The saver also has the option of transferring voluntary contributions to their old-age pension saving.

• the payout phase - where old-age pension, or early old-age pension is paid to the beneficiary from the appreciated contributions - in the event of death of the beneficiary, the survivors of the beneficiary, if any, get paid inheritance pension. Depending on the chosen form of payout of the old-age pension from the 2nd pillar, the pension that the beneficiary receives might be paid by their insurance company, or the PFMC.

According to the financial register of the National Bank of Slovakia (NBS), as of April 2024, there are five pension fund management companies present in Slovakia (Allianz - Slovenská dôchodková správcovská spoločnosť, a.s., KOOPERATIVA dôchodková správcovská spoločnosť, a.s., skrátene KOOPERATIVA, d.s.s., a.s., NN dôchodková správcovská spoločnosť, a.s., UNIQA d.s.s., a.s., and VÚB Generali dôchodková správcovská spoločnosť, a.s.).

Supplementary pension scheme (3rd pillar)

The supplementary pension scheme (the so-called "3rd pillar") is a voluntary system, where the financial assets of the participants are managed by supplementary pension companies.

Supplementary pension scheme is supposed to enable the participants to gain:

• additional pension income in old age and
• additional pension income in the case of a withdrawal from a high-risk occupation - the concrete list of high-risk occupations is issued by the legally responsible state authorities. In addition to the list, occupations such as a dancer in companies and theaters - regardless of the style or technique - or a wind instrument player are also considered to be high-risk.

Entrance to the 3rd pillar:

• is mandatory for an employee who has a high-risk occupation. The employee is required to enter the 3rd pillar within 30 days since the start of this occupation.This means that the employee has to enter into a participation contract and their employer has to take out an employer contract with the supplementary pension company (Slovak: Doplnková dôchodková spoločnosť (DDS)) of the employee's choice within 30 days.
• is voluntary for employees who have other than a high-risk occupation and for citizens older than 18 years.If an employee - or more precisely - a citizen older than 18 years decides to take part in the 3rd pillar, they are obliged to close a participation deal with the supplementary pension company. The employer of such persons is, however, not required to enter into an employer contract with the respective supplementary pension company.

In the saving phase of the scheme, the participants, or, alternatively, the employers of the participants pay contributions to the supplementary pension saving, which the participants are able to invest into one or more contribution funds of the chosen supplementary pension company. Transfers among individual funds inside a single supplementary pension company are not subject to a charge.

• Contributions of employees who have a high-risk occupation and who have entered into a participation contract are paid by their employers since their first day at work.The employee can pay the contributions during this employment, but is not required to do so.
• Contributions of employees other than those with a high-risk occupation are paid by the employees themselves. The employer can pay the contributions for the employees if the employer contract was signed.

In the payout phase, benefits are paid to the beneficiary after the end of saving - what benefits are paid to the beneficiary also depends on the period when the participation contract was signed and whether it contains a benefit plan.

According to the financial register of the National Bank of Slovakia (NBS), as of April 2024, there are four supplementary pension companies present in Slovakia (Doplnková dôchodková spoločnosť Tatra banky, a.s., NN Tatry - Sympatia, d.d.s., a.s., STABILITA, d.d.s., a.s., and UNIQA d.d.s., a.s.).

Pan-European personal pension product (PEPP)

Pan-European personal pension product (PEPP) is a transferable voluntary EU-wide personal investment product that has a long-term pension character and incorporates ESG factors while investing. It is primarily aimed at young people and mobile workers among the EU’s citizens.

According to the financial register of the National Bank of Slovakia (NBS), as of April 2024, there is one provider of PEPP present in Slovakia (Finax, o.c.p., a. s.).