Remodeling Private Pensions, Credins Invest: How your income is affected by the new law

Remodeling Private Pensions, Credins Invest: How your income is affected by the new law

A new legal development provides a breath of fresh air at a time when many of you are consumed with concerns about your financial future. Since passing in 2009, the current legislation pertaining to private pension funds has not kept up with the demands of a dynamic market. However, on November 6, 2023, a new incentive was introduced in the form of Law No. 76, which was ratified on September 21 of the same year by the Albanian Parliament.

This law is specifically intended to solve the difficulties that have been faced thus far. The new law is a significant departure from the previous one, allowing for further harmonization and alignment of legislation with European directives. It also aims to encourage employers and individuals alike to view private pension funds as the most advantageous way to supplement the public pension system.

It is safe to say that the recently passed legislation responds to the years-long requests from the fund’s management companies and members for an assessment and enhancement of the legal framework.

In this piece, we will examine the specifics of this law and the financial incentives that come with it, utilizing the help of Credins Invest’s experts. They define what the changes entail for every person in straightforward, understandable language. They also underline how private pension plans directly benefit both current and prospective members.

Experts claim that the new law provides financial advantages due to the facilities implemented, the raised service standards, the administration of funds by the fund management companies , and the fund’s increased guarantees.

But what is it about precisely? Let us concentrate on all the enhancements that the recently passed legislation offers to private pension funds.

1. Doubling up allowable deductible contributions:

From a set value of 200,000–250,000 Lek, depending on age (under 50 – over 50, respectively), which had been unaltered since 2009, the maximum annual deductible limit for the effect of personal income tax has been raised to the minimum annual wage of 480,000 Lek. Employers who make contributions to their employees’ private pensions,  deductible income taxes, are subject to the same cap, which is the minimum yearly wage of each employee (480,000 Lek). You can now save more for retirement while paying less income tax on your contributions.

2. Fiscal benefit in the form of direct money and discipline in periodic withdrawals:

As opposed to the previous law, you will only be taxed on the income from your investment interest if you decide to retire, even if it is five years ahead of schedule. The sole requirement for this is that you withdraw money every month—not the full investment amount all at once—for at least two years.

3. Setting up a closed pension fund and customization of the employee pension plan:

Do you work as an employer or are you a member of an organization or trade union that represents employers? In addition to open participation pension funds (as per the previous law), closed pension funds can now be established. It includes the involvement of workers or patrons of your business, along with terms and components that you choose, including the management charge, investment policy, vesting period, etc.

4. Transparency and detailed information for fund members:

The management firms will provide you with transparent information regarding your contributions. In particular, you will receive balance evidence of your account once a year; you will also have access to your account at any time to monitor any potential financial movements, as well as the fund prospectus, interim and annual reports, and      audited financial statements.

5. More investing opportunities:

The new law provides you with a wider array of financial tools to invest pension fund assets, diversify your holdings, and guarantee a suitable rate of return.

6. Favoring employers in their pension scheme for employees:

Under the new law, an employee must now stay faithful to their employer for five years to get benefits from contributions, as opposed to the previous requirement of two years. This point benefits you in your pension plan if you’re an employer and are reading this post.

7. Shorter benefit payment terms and reduced administration costs:

Compared to the prior law, a reduced maximum administration charge of 2.5% has been established instead of 3% annually on the net worth of assets. In addition, the pension benefit’s 30-day payment conditions have been reduced to 15 days.

8. Possibility of good cross-border marketing opportunities after Albania joins the EU:

The new law will allow for broader promotion of pension funds through agents by regulating promotional activity.

The above-explained facts make it clear that the new law regarding private pension funds provides greater stability and security for those of you who have already taken the initiative to start planning your retirement or who wish to do so. Even though the experts at Credins Invest offer thorough advice with integrity and responsibility, it is crucial that you, as an employee and employer, make informed decisions regarding your financial future.