Think three times before you draw
Watching the current pension levels one could quite logically see that this money would be very far from enough. There are various ways to save and invest for that purpose, one of them being the voluntary pension funds. They monthly collect their clients' contributions and invest them in various financial instruments with the idea to increase them and when the time comes, to pay supplementary pensions. Recently however the financial markets are, to put it mildly, off form, the investment yield of the funds logically drops and people take all sorts of desperate efforts to keep their money. Some decide to switch to another fund, others even to withdraw their money, not realizing that thus they cash down the losses and pay additional fees and taxes.
Think from the beginning
Before becoming a member of a voluntary pension fund you should first have in mind that this is worthwhile only as a long term saving for the purpose of receiving a supplementary pension and not for a quick profit. When you are choosing your fund you should take into account the amount of money you could put aside and the period during which you could do it, the decisive factor being your age and how many years you have before retirement. "It is not unreasonable to ask for help before choosing, since that business is relatively young in the country and the insurance culture of people is not enough high", explained Daniela Petkova, CEO of Doverie Pension Assurance Company. Either from the web sites, or by visiting the pension companies' offices you can get acquainted with their regulations, which they are obliged to make available to you, to ask on the spot or by phone about free detailed information, and you may also ask a broker.
Before concluding the agreement with the chosen fund you will prepare your individual plan, stating how much, when and how you will make your contributions. For people just starting their career and having many years of employability before them, the possibility of future salary adjustment will also be considered. When signing the agreement you are also informed about the risks which that type of saving may carry. "The risk is that the funds realize yield daily, and no matter whether positive or negative that yield is distributed on the accounts of the insured persons", explained Daniela Petkova. The pension funds in Bulgaria are working on the defined contribution principle, i.e. your pension amount will depend on the yield during the years and no matter what the current yield is you cannot calculate the exact amount before the time of your retirement comes.
Every company is obliged to publish a daily activity report, so you can always check data on the risk, yield, etc. Such information you may find also in the web site of the Financial Supervision Commission.
The total number of people insured under occupational pension schemes in all pension funds by September 2008 is almost 3.6 million according to data of FSC.
From the beginning of 2008 the total amount of assets of the pension funds has increased by 2.73%, while at the same time the assets of the voluntary and the professional pension funds have reduced by 15.8% and 5.6%, respectively, according to data of FSC.
Several numbers to consider
"Clients first care about the yield, only then they think of the fees, and sometimes even forget about risk. For example, presently we witness how clients of a given pension fund suffer form the realized considerably negative yield; the same clients last year enjoyed much higher yield than that of the other funds but now their loss is bigger. That is quite natural from investment point of view", marked Mrs. Petkova. The explanation is quite simple; some funds take bigger risk, others smaller but at a time of crisis the first suffer greatest loss.
If for instance you do not like the dose of risk your company takes or if you decide that another company would be more paying, the law allows you once in a calendar year to transfer your account from one into another voluntary pension fund. This however will cost you BGN 20, which are often deducted from the total accumulated amount before the transfer. As long as the company is correct enough, they will inform you about that, but they may also not. It is not a considerable amount really, but yet it reduces the amount on your account and respectively your pension in future, so you should think twice before taking such a step.
Making contributions to your personal account you are charged certain fees in the agreed rate or amount and the state stimulates such kind of saving by imposing limits to fees and taxes. "The present maximum is 7 percent but the tendency is to lower fees due to the market competition", said Valentina Dinkova, Director of the Regulatory Regimes and Risk Evaluation Division of the Financial Supervision Commission. Another stimulus for saving for old age is that the money you contribute for a pension is to a certain amount free of tax. You may contribute to the fund as much as you like but only 10 percent of your salary will be tax-free, the rest is taxable no matter whether you contribute to the fund or not. With the voluntary pension funds you may withdraw as much as you like and whenever you like from your account before retirement but with the withdrawal the preferences have to be restored. It is also important to note that the accumulations on your individual account are not subject to enforcement, i.e. if you are in debt they cannot be taken from you like your other property.
The crying game
You must be clear that you may be quite at loss if you decide to make pension insurance just for a few years. In the recent years many people, lured by the high yields and preferences, contribute money to pension funds just for a quick profit. Now those people suffer most from the crisis. "People should have in mind that pension insurance is not like a bank deposit and when the period of management of their money is too short the risks related to financial market crises are greater", explains Tatyana Ikonomova, Head of the Regulatory Regimes Division of FSC.
The average Rate of return of the fund is not the same as the Rate of return of every member since everyone has a unique period for which the yield on the individual amount is calculated. This is the period from the very start of making contributions to the day on which the yield is calculated. For example, a member of Doverie pension fund has made from the year 2000 till now 105 contributions, the accumulated amount in his individual account is BGN 4,243 as of Oct. 31, 2008 and the yield is BGN +665.07, while another member making contributions since 2004 has accumulated BGN 2254 and an yield of BGN -231.30 as of the same date. "Of course I do not underestimate the problem of anyone but we have clients that are free from anxiety since we already faced the crisis of 1996 - 1997. They have already seen that within a longer period of time crises may be overcome and losses compensated. Within the framework of the yield that was distributed on their individual accounts the crisis left no traces. That is why they are aware that when the present crisis is over there will be again a period of recovery", says Daniela Petkova.