Barriers in the private pensions fund
Story Highlights
- Economic and social development, the legal framework, and the financial education are the three main factors that have hindered the development of the private pension funds.
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Brunilda Haxhimihali who is Director of the Legal & Compliance Department at Raiffeisen Invest, identified the level of economic and social development in our country as a factor that has hindered the development of the private pension funds. According to recent World Bank reports on poverty, Albania is ranked as one of Europe's poorest countries. “With a limited labor market with a high level of unemployment [12.1 percent officially reported by the Albanian Institute of Statistics (INSTAT) for the first quarter of 2019], with a minimum salary of 26 thousand lek (210 euros), without forgetting and the existence of an informal economy at a high level, all obviously are factors that do not allow the development of this market,” Haxhimihali said.
She identified the legal framework as a second factor. Voluntary retirement funds have been accompanied by incentive packages wherever they are developed, mainly in fiscal terms, which are applied according to different formulas adapted to a country's systems. The law “On Voluntary Pension Funds” has a special section regulating the fiscal regime of this scheme, provisions subsequently reflected in the “On Income Tax” law with amendments dated in 2014. But if the process of applying fiscal facilities when a member is involved in a fund through a professional plan created by employers to motivate employees, is regulated by the normative acts provided by the law, while for some other categories such as self-employed, immigrants or other individuals who want to create an entirely funded pension plan as students or housives, the way of applying fiscal facilities is de jure completely unspecified. Haxhimihali said that these categories have shown a great interest in a long-term investment with the purpose of retirement, but the inability to benefit from incentive instruments has pushed them to postpone their participation in a more convenient moment.
The third factor Haxhimihali identified, which she named nevertheless very much important, is the financial education and public awareness. Although she has noticed positive changes in recent years, she still sees a lack of awareness, at times coupled with a lack of trust in these funds linked to our financial history, but also to the degree of development of society in general. She said the society continues to appear eager for consumption and the tendency for savings plans or long-term investment for pension purposes appears low. “People continue to consider retirement as state responsibility. Regrettably, we often find this approach to the young generation, whose financial education remains a challenge for all market players, regulatory authorities and beyond,” Haxhimihali concluded.
