Innovative approach to managing savings in the 3rd pillar
DDS Tatra banky is the first in Slovakia to introduce an innovative approach to managing savings in the 3rd pillar - Comfort lifeTB. The funds actively adapt their strategy to their clients' life cycle, bringing them comfort throughout the period of saving.
Why is pension saving necessary?
It will be increasingly more difficult to maintain or increase the current life standard after retirement. "At the end of 2014 an average amount of old-age pension was €400.14, while an average gross wage was €858 in 2014. Percentage of the average old-age pension to the average wage was 46.64 percent (the so-called replacement rate). Given the demographic development, we can expect gradual decreasing of the replacement rate. We can also expect decrease in the merit component in the 1st pillar. This means that people with an above-average wage will receive an old-age pension only slightly higher than those with an average or below-average wage," says Juraj Valachy, Economic Analyst at Tatra banka.
Aging of Slovak population (trends in age groups, change in percent)
Population aging graph shows that around 2050 the number of people older than 65 years will be almost double and the number of people aged 15 to 64 years will be about 20 percent lower than at present.
If people in Slovakia want to have a higher pension, they need to secure an additional income. The 3rd pillar is a realistic alternative that uses the advantages of an employer's contribution, tax relief or inheritance.
Change brought by Comfort lifeTB
The concept of Comfort lifeTB is based on saving in a single fund from the beginning of saving until the end. It reflects a client's current age, or an expected year of retirement, to which the entire strategy of the fund will gradually adapt throughout the period of saving.
"With client's growing age we will gradually manage the client's pension savings more conservatively. We consider it important that the value of savings before pension is exposed to the impact of financial markets as little as possible. Clients no longer have to bear in mind to adapt the setting of their pension saving with respect to their current age. From now on we do it for them. The Comfort lifeTB strategy is a unique product for clients' pension savings in Slovakia," says Martin Ďuriančik, Vice-chairman of the Management Board and Director of DDS Tatra banky.
Selecting a suitable fund
For the Comfort lifeTB strategy of the funds to work property, it is necessary to choose a fund that corresponds to the anticipated retirement of the saver. When choosing a fund, savers will follow a simple rule - their year of birth. It will serve as the basis for calculating when the client will have 62 years and to determine which fund is suitable for the saver. For simple orientation the anticipated year of retirement will be given in the name of the fund. A fund will group clients retiring 5 years before and 5 years after the year included in the fund's name.
An illustrative example how Comfort lifeTB works
If a client was born in 1975, it is expected that such client will retire in 2037 (aged 62 years). The fund with the year nearest to this period and the most suitable strategy for such client is Comfort lifeTB 2040.
When a client is younger, the strategy is more focused on returns and growth potential. This means that it is set dynamically. The fund includes a higher share of growth assets such as shares. The process of becoming more conservative will start 15 years before the year in the name of each Comfort lifeTB fund. A fund's strategy gradually reduces the risk of saving and focuses on the stability of savings before retirement.