09 Nov Savings in a voluntary pension fund are an investment in the future – ours, our children’s and grandchildren’s
Setting aside 10% of your monthly income to invest in an individual account in a well-managed pension fund allows your funds to grow by at least 50% in about 7-8 years.
Adopting a long-term savings strategy is a source of financial security, peace of mind and predictability. When we save wisely and prudently, without affecting the normal life of the family, we guarantee our financial “reserve” in case of unforeseen circumstances, investment emergencies or other important expenses. Despite the extra income available, accumulated holdings are a very big help to our finances.
Many people would describe their lives as quite ordinary, but with the right investments, they can do many extraordinary things, such as provide a better education for their children or extra tutoring for their talented grandchildren. All you need is consistency and good ideas.
The most important thing is saving regularly in a voluntary pension fund in small amounts relative to personal income.
Setting aside about up to 10% of your monthly income to invest in an individual account in a dynamic and well-managed retirement fund of your choice will allow the funds to grow by at least 50% or more over about 7-8 years, which is usually the length of an investment cycle. Of course, the most important thing is to balance between stable, low risk, and medium return investments when determining the investment strategy of fund managers. Pension funds invest in a wide range of assets that can help spread risk and mitigate the impact of market volatility. It is the balance between risk and opportunity that measures the professionalism of fund managers. The choice of pension fund is therefore very important.
With stable personal and family finances, the economic situation in Bulgaria today is particularly suitable for investment in a voluntary pension fund. At present, Bulgaria is not yet in a recession and unemployment is low, while the euro area is experiencing economic stagnation and an increase in unemployment. Last week (3 November, ed.), Eurostat reported that in September unemployment in the 20 countries of the Eurozone (all EU members) reached 6.5% with 69,000 newly unemployed and a total of over 11 million people of working age. Wage growth on the other hand has kept inflation high. The European Central Bank cannot lower interest rates to fulfill its mandate and ensure price stability and limit appreciation to around 2% on an annual basis. The ECB predicts unemployment will rise to 6.7% in 2024 and GDP will stop growing and may even start to decline. Against this backdrop, Bulgaria stands relatively well without a huge industrial base and with many small and medium-sized enterprises producing parts and components or licensing goods to concerns that are again downsizing or cutting back their production in Western Europe.
Why choose a voluntary pension fund?
Supplementary voluntary pensions are funded through contributions, the frequency and amount of which you determine. They are paid into your individual account. The accumulation of the funds in this account provides an additional pension, which is received independently of the pension granted by the National Social Insurance Institution and the pensions from the supplementary compulsory pension insurance, and/or savings to be used at your discretion.
Supplementary voluntary pension insurance, through regular contributions, enables active Bulgarians not to fall into the situation of today’s pensioners. This will raise your pension income to the normal and generally accepted European levels of 75-85% of your last salary. The funds in your individual account are inheritable and not subject to enforcement (by a Private Bailiff). What’s more, this reduces the amount of income tax payable. Pursuant to Article 19 of the Personal Income Tax Act (ITA), the sum of the annual tax bases is reduced by the personal funds contributed up to 10 per cent of the sum of the annual tax bases. The return on the management of the funds in the account is not taxable. At the same time, the funds are available at all times and can be withdrawn relatively quickly without significant losses, unlike funds invested in real estate and equities.
In a highly competitive labour market, employers in Bulgaria are increasingly applying good European practices to incentivise their employees through social benefits, including regular employer contributions for the benefit of their employees. The Corporate Income Tax Act allows the employer to make any contribution, up to BGN 60, to an additional voluntary pension scheme tax-free and not subject to mandatory contributions.
Important information from DallBogg
We recommend that your contribution amount is set as a percentage of your insurable income – this way it will increase automatically as your income increases.
You are also entitled to a tax preference at annual equalisation by making a one-off contribution of up to 10% of the annual taxable amount.
The flexibility that additional voluntary pension provision allows – how much to contribute and when to contribute it – increases the motivation for many not only to start contributing to a voluntary pension fund, but also to increase their contributions. This inevitably leads to an increase in individual account balances, which can support the wider economy – by injecting additional financial resources in the form of investment in sound, risk-based and legally permitted investments.
In times of economic uncertainty (inflation, unemployment and negative demographic trends), the money invested in a voluntary pension fund becomes a kind of insurance and a guarantee for the family’s normal life.