New law gives incentives to both employees and employers to participate in pension funds. It also stipulates how investments with the fund’s money can be made.
TIRANA, Dec. 9 – Facing increasing pressure on the public social insurance system, Albania’s government has decides to give some tax incentives for people who choose to pay voluntary contributions to private pension funds.
A new law that deals with voluntary pension funds gives the right to contributors to deduct from their taxable wages the amount deposited with private pension funds.
“The contribution made by each member of a pension fund is deducted from his or her personal income for effect of taxes,” the law says. The top allowance is Lek 200,000 or 15 percent of the member’s gross income.
The law aims to give a helping hand to the private pension fund industry in Albania, which can alleviate the pressure on the mandatory social insurance pool. It is a system widely used in other countries.
The law also aims to help employers. If a business agrees to provide its employees with private pension funds access, then the amount put in the voluntary pension fund, will be recognized as tax expense. So, in the closing balance, the entire amount can be cut out of the number on which the tax on profits is calculated.
By law, all those who become part of the pension fund have the right to receive immediate payments on the net asset value of the account, or periodic payments in the form of pension.
The law is also envisaged payment of installments if the persona passes away.
“If a member dies before he received payment of all his assets, assets in his account will be distributed to the heirs, in accordance with legal provisions that regulate the inheritance,” the law states.
With this move, Albania joins many other countries that offer similar incentives, because the public system of the state social insurance is moving toward being unable to meet the needs of the elderly.
Private pensions are a method that is seen today as the savior of the system, and that is prevalent in financial markets worldwide, even in neighboring Kosovo and Macedonia.
The idea is that through effective investments, the funds would provide a pension that can pay out 2.5 to 5 times more than the contributions paid in it. And through a better administration, it increases the safety, guarantee and transparency in these pension schemes
The investments of the funds make must meet certain requirements by law and the risk losses must be well-distributed.
