ECP – a New Option to Save for Retirement
The ECP contributions mean saving money for retirement for your employees – apart from that saved in the Social Insurance Institution and Open Pension Funds. This one, however, is voluntary and more flexible.
ECP vs OPF
- employees will be covered by the ECP by default. They can resign from the scheme, but they have to do it at their own request which has to be submitted every four years. The OPF (Open Pension Fund) is a mandatory form of saving money.
- The ECP is more flexible than the OPF. Employees may use the funds collected under the ECP before they turn 60. If they use it for the down payment when taking a mortgage loan, they are allowed to use up to 100% of the savings. If the reason for the disbursement is difficulties in life, e.g. an illness of a close relative, they can use up to 25% of the savings.
- The ECP contributions are the property of the employee – he or she has to pay tax for it. Thus, they can be inherited; the employee will name the person to inherit the money in case of the employee’s death in the contract. The OPF contributions, on the other hand, are transferred via the Social Insurance Institution where they are transferred directly. This is why they are seen as public contributions.
The statute assumes that the employee will disburse the money from the ECP account when he or she turns 60. In some circumstances, however, it may be done earlier.
Disbursement when turning 60 – 3 options
- OPTION 1: The employee disburses 25% of the savings at one time, and the remaining funds in at least 120 monthly payments.
- OPTION 2: The employee disburses all the savings in at least 120 monthly payments.
- OPTION 3: The employee disburses all the savings in a lower number of regular payments. If this is the case, a 19% tax on the profit generated will be charged.
Earlier disbursements in case of special circumstances
- SCENARIO 1: The employee may disburse up to 25% of the savings, if he or she, his or her spouse or child gets sick.
- SCENARIO 2: The employee may disburse up to 100% of the savings to use it as the down payment when incurring a mortgage loan for his or her first home. In this case, however, all the disbursed funds must be returned. The return payments may start no earlier than 5 years after the disbursement and have to be made within the next 15 years.
Transfer disbursement – all savings to a new ECP account
When the employee changes his or her job, they may transfer the money from the ECP maintained in your company to an ECP at the new employer. To do that, the employee has to place an order of transfer disbursement. It applies to all the savings collected.