How to age to black zero. The expert advises millions of people in pension funds

Czechs don’t want old pension funds, even if they have close to zero returns. From January, it is possible to “freeze” this savings and start investing more boldly in new, participating funds. And that without the saver losing state benefits.

Four and a quarter million Czechs save for their pension, most of them very carefully. In old onesthe so-called transformed Last year, a total of 2.4 million people saved for retirement in funds that cannot be accessed for ten years.

These funds guarantee them that they will not lose money. They can end up with zero returns at worst every year. But they don’t even make money in them, the returns of the old funds don’t even beat inflation in the long term, and the state is trying to convince people to provide for their old age more efficiently.

The new possibility of freezing the old pension, which has been valid since January, is also motivating. The saver can keep one foot with his savings in the old fund, with the certainty that his account will not go into the red. At the same time, he can step into new or participating funds with the other foot with a higher yield. Even a pension expert, currently the chairman of the board of the investment fund Avant, recommends such a solution to his generation Vladimir Bezdek.

“I’m going to be 50, I’m one of the 2.4 million people who are in old transformed funds. I will stay with the old capital in the transformed funds and stop sending new deposits there. I will start sending new deposits to supplementary pension savings. I can be there and there,” he explains in the podcast In cotton wool.

Until the end of last year, it was not allowed to have two parallel pension insurance contracts, but now it is possible, so it is not necessary to transfer contributions from the old fund to the new one, it is enough to so-called freeze them and the deposited amount will continue to accrue interest.

Although Bezděk invests much bolder elsewhere, he uses transformed funds as a conservative part of his portfolio. “For me, transformed funds fulfill the role of such an anchor. And I realize the profit or investment income elsewhere. At fifty, a person still has a relatively long time – 10 to 15 years – to be open to a slightly bolder investment.”

The downside to this strategy is the double fees. The state allowance is only drawn on one of the two pension savings contracts. And with the new contract, of course, the participant must once again meet the minimum savings period.

“In the new pension, you start from scratch, and when you meet the withdrawal conditions, you have what you earned by investing in the new ‘pension’, and at the same time what is waiting for you ‘frozen’ on the old supplementary pension insurance contract,” explains Petr Tošek from Association of Pension Companies.

Vladimír Bezděk is interceding for the reform of the obligation of old funds to end each year at worst at zero, not in the red. “The obligation of that annual non-negative zero should be revised. Clients should be allowed to choose if the guarantee would not be enough for them not every single year during their investment horizon, but at the end of their investment maturity, that is, in those 60 or 65 years,” says Bezděk.

How should a twenty-five-year-old prepare for retirement? According to Vladimír Bezděk, you should start saving from the first paycheck. “I would strongly recommend, if it’s even a little possible, to build a habit – just like we brush our teeth – and put at least five percent of each regular income aside, not to consume it. And don’t reach for long-term savings of 40 years.”

At the same time, according to Bezděk, it is crucial to start owning your own home as soon as possible. “To gradually start working on own housing, because if I live in my own house, it means that I don’t have to pay rent to anyone in retirement and it means a relatively significant saving,” says Bezděk.

According to Vladimír Bezděk, family is also a good safety net. “It may be controversial, but family also makes sense economically. The investments we make in children, both financial and non-financial, will one day be richly returned to us.”

Vladimír Bezděk was a guest of the podcast Ve váte together with the program’s permanent expert, economist Jana Matesová. The topic was the approved pension reform. How will it affect each generation? And how to arrange for retirement according to your own axis? Listen to the podcast at the top of the article.