Decide for yourself about your pension
The latest pension analyses show that if we want to maintain the standard of living also after retirement, we can no longer rely on the state. We will solely be responsible for the amount of our pension.
The Slovak pension system is based on three pillars. The pension insurance system is based on the Social Insurance Agency, which pays the so-called state pension (Pillar 1), which works on ongoing funding. This means that the money paid by those who work as pension contributions is immediately paid out as pensions to the current pensioners. Money does not increase in value; it is merely transferred from those who work to pensioners.
This system is unsatisfactory because the money collected is no longer sufficient for the payment of pensions. The Social Insurance Agency must cover the deficit from the state budget. And the situation will get even worse in the future.
Demography is the reason
For the last 20 years, the birth rate as well as the number of those who work has been decreasing. But, the number of pensioners has been rising. At present, 1.6 of those who work contribute to the Social Insurance Agency for one pensioner. The ratio will be balanced out in 2040. In 2060, only 0.74 of those who work will contribute for one pensioner.
The lack of funds in the Social Insurance Agency will mean that pensions will have to be lower and the retirement age will have to increase. The retirement age is already being gradually increased. We are no longer entitled to retirement at 62 as was the case a few years ago, but 63 days are added each year to the age of 62. So, those who are now in their 30s are to retire at the age of nearly 67.5 years.
Besides the state pension, there is also Pillar II (DSS) and Pillar III (DDS). These two pillars can help ensure that your total pension is higher.
The Golden Retirement Rule says: Secure at least 2/3 of the original income
Projection of reimbursement rates on retirement
Source: Model "DYNREG", Matej Bel University (2018). In I. and II. pillar example illustrates wage compensation in the case of 40-year savings of the average wage client, investing in risky pension funds and taking into account demographic developments. Rate of refund from the III. pillar is built on the basis of the average saving of the clients of DDS Tatra banka.
Old-age pension savings – Pillar 2 (DSS)
A portion of the Pillar 1 pension insurance contributions is invested through a pension management company (DSS) and your pension can thus increase in value by yields from the investments. You do not have to pay any of your own money to this saving.
Supplementary Pension Saving? - Pillar 3 (DDS)
If you want to keep at least the basic standard for retirement, it is now necessary to save your own money. Supplementary Pension Saving (DDS) to which employers can also contribute. Thanks to the tax relief it is favorable for all and it can provide the missing bit of income if set up adequately.