* Proposal to eliminate breakeven requirement for 3rd pillar
* Funds to be able to invest in wider range of assets
* Changes come as part of wider pension reform
(Adds quotes, details, background)
By Jan Korselt and Roman Gazdik
PRAGUE, Feb 25 (Reuters) - The Czech Finance Ministry is
proposing looser regulation for existing pension funds, as part
of government pension reform, including ending a breakeven
requirement, a deputy minister said on Friday.
The Czech centre-right government aims to approve a pension
overhaul this year that would begin filtering part of social
taxes into private pension funds in 2013 in a new second pillar
that will be more tightly regulated than other funds.
In an interview, deputy Finance Minister Klara Krol said
that existing pension funds in the system's fully private
so-called third pillar will have wider investment opportunities
under the reform and will be able to invest in more asset
classes.
The funds, which administer assets equal to 6 percent of
Czech economic output, have been subject to tight regulation
such as the breakeven requirement to cover any losses with fund
administrators' own capital.
Analysts and industry players have said this regulation
often means lower returns.
"(The third pillar) will be funds with separated assets
without the guarantee to at least break even," Krol said.
"The third pillar will be regulated less than the second. In
the third pillar there will be an unlimited number (of
investment strategies)."
She added that people will also have the option of investing
in third-pillar funds under existing conditions if they choose.
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FACTBOX on key parametres of the plan []
For a story on the government's plans []
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NEW PILLAR
The pension plan, still to be finalised and expected to be
implemented in 2013, will allow people to begin diverting 3
percentage points from the 28 percent social tax to their own
savings accounts and away from the current pay-as-you-go system
that uses current tax receipts to pay pensioners.
The money diverted must also be matched by 2 percent of a
person's salary.
Krol said pension funds in the newly created second pillar
will have the option pick one out of four investment strategies
defined by level of risk.
Those funds will have to invest in publicly traded assets,
but can also invest in riskier assets via other funds.
They will be required to hold a minimum of one-third of
their portfolio in Czech crown assets.
"There will be a requirement for a certain part of
investments to be denominated in Czech crowns, which means more
or less bought through the Czech bourse," she said.
She said this could give a boost to capital markets similar
to the situation in neighbouring Poland, where private pension
funds are required to invest nearly all of their assets at home,
helping market liquidity.
(Writing by Jason Hovet)
