Main features second pillar

What is the old-age pension scheme?

The old-age pension scheme is the second pillar of the Slovak pension system. It is a pension saving scheme whose purpose is, in combination with pension insurance (i.e., the first pillar), to ensure an income for savers in old age and for their survivors, if any, in the event of their death. It is a funded defined contribution scheme, which means that the amount of the pension benefit depends on the amount of contributions paid into the scheme and on the investment returns on these savings.

Who are savers under the second pillar and how do they enrol?

• A saver under the second pillar is a natural person who has concluded an old-age pension scheme agreement (hereinafter an ‘OAPS agreement’) entered in the Register of Old-Age Pension Scheme Agreements, or who has concluded an agreement on the payment of an old-age pension or early retirement pension through scheduled payments.
• It introduces automatic participation in the second pillar for every natural person whose first participation in pension insurance will establish after 1 May 2023 and who is no more than 40 years old. This person may conclude the first OAPS agreement with any PFMC within 180 days from the date of his first participation in second pillar and if he does not do so, the PFCM will be assigned to him by Social Insurance Agency.
• The participation in second pillar is not mandatory, a saver may leave from this system till two years from the establishment of the first participation in second pillar and at the same time has right to re-enrol (however a saver may only once leave and re-enrol).
• Only person whose first participation in pension insurance has been established and who has not attained 40 years of age may conclude a first OAPS agreement, whereas this age will increase every year following on from increase retirement age.
• The Social Insurance Agency informs everybody who automatic participation in second pillar is concerned no later than 60 days from the establishment of the first participation in second pillar about his rights and obligations related to his participation in second pillar.
• The automatic participation is not concerned person whose first participation in pension insurance established before 1 May 2023, however this person may enrol voluntary but only till has not attained 40 years of age.

Savers’ contributions to the second pillar are transferred to their personal pension account. Second-pillar contributions include both mandatory and voluntary contributions.

Mandatory contributions

• The Social Insurance Agency collects mandatory contributions and is required to transfer them to the saver’s pension fund management company, which in turn is required to credit them to the saver’s personal pension account.
• The amount of mandatory contributions is determined as a percentage rate of the assessment base attained in the relevant period. From 1 September 2012 to 31 December 2016, that rate stood at 4 % of the assessment base. After this period, the rate raised by 0,25 % each year till 2022. In the years 2022 to 2023 the rate was at 5,50 % of the assessment base. In the year 2024 and subsequent years the rate will remain at the level of 4 % of the assessment base.

Voluntary contributions

• Savers may also transfer voluntary contributions, in an unlimited amount, to their personal pension account under the second pillar.

Changes in the payment of contributions

• From 1 May 2023 savers may also transfer voluntary contributions even without a contractual agreement if they are interested.
• From 1 January 2025 it is possible to transfer mandatory contributions for working pensioners and pay voluntary contributions even while receiving an old-age pension or an early retirement pension in the form of a scheduled payments, i.e., during the entire period when the saver has his personal pension account in the PFMC up to the start of payment an old-age annuity by the insurer.

Accumulation phase

• Savers’ mandatory contributions and voluntary contributions are transferred to their personal pension account held with and managed by the PFMC with which they concluded the OAPS agreement.
• Savers may choose the PFMC with which they wish to save and the pension fund to which their contributions will be allocated. Their contributions will be invested in accordance with the chosen fund’s investment policy.
• It is possible to save in the several pension funds without obligation to save in the guaranteed bond pension fund.
• Saver may choose ratio of division of his assets between even every pension fund managed by the relevant PFMC, if they mutually agree on it. However, the PFMC is not obliged to allow the saver to invest in more than two pension funds.
• It is introduced the so-called default investment strategy (PIS), which will be automatic for all those savers who do not decide otherwise. PIS is a defined automatic machine that, based on the age attained, will adjust the distribution of assets individually for each saver, taking into account the risks and with the potential benefit of a higher yield in the long term, i.e., assets will be invested partly in an index non-guaranteed pension fund and partly in a bond-guaranteed pension fund, depending on the age attained of the saver.

Decumulation phase (valid until 31 December 2024)

• When savers become pension beneficiaries, they are paid an old-age pension or early retirement pension out of their pension savings inclusive of investment returns, or their survivors, if any, are paid a survivor’s pension.
• Pension beneficiaries may opt to have their pension paid by an insurer of their choice (in the case of an annuity or temporary pension) or by the PFCM (in the case of scheduled payments).
• If a saver dies, the authorised person designated by the saver in the OAPS agreement becomes entitled to the payment of the respective amount from the deceased saver’s personal pension account.
• Where a saver has not designated an authorised person in the OASP agreement, or no such person exists, the savings in the saver’s personal pension account become succession property.

Changes in the decumulation phase effective from 1 January 2025

• The pension beneficiary is paid his pension in the form of the scheduled payments (by the PFMC) and in the form of the old-age pension (annuity by the insurer). In the first part of decumulation phase the pension is paid exclusively in the form of the scheduled payment from the half of the accumulated amount and then, after its end, the second part in the form of the old-age pension.
• The scheduled payment is paid from the half of the accumulated amount during period calculated as the half of the median life expectancy for men and women of the age of the saver i.e., half of the expected number of years the saver should live (approx. 10 years). The pension beneficiary may choose a fixed or variable amount of his scheduled payment.
• The second part of the pension beneficiary´s accumulated amount remains in the pension funds during the scheduled payment whereas part of this amount may also be divided in the other pension funds as in the guaranteed bond pension fund. Pension beneficiary has the right to pay voluntary contributions and if he is a worker mandatory contributions are also transferred to his personal pension account.
• After the end of scheduled payment, the pension beneficiary is paid old-age annuity from the second part of his accumulated amount which he chooses on the base of the offer letter.
• Regarding the scheduled payment the pension beneficiary may adapt the payment tohis preferences and get paid the scheduled payment as a lump sum. The condition for the payment of the lump sum is to have a sufficient amount of old-age pensions i.e., the sum of the amount of his pension benefit from the first pillar or service pension, foreign pension etc. is higher than a reference amount (average monthly payment of old-age pension).
• If a saver dies, the authorised person designated by the saver in the OAPS agreement or heir/heirs becomes entitled to the payment of the respective amount from the deceased saver’s personal pension account during the entire period when the saver has his personal pension account in the PFMC up to the start of payment an old-age annuity i.e., even during the scheduled payment.

Last updated on 16 Jan 2024