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The battle between private pension funds and the state for the future of the second pillar of pensions continues. In recent days, it has consisted of exchanging advice to citizens on whether to transfer their pension accounts to the National Institute of Social Security or leave them in private funds.
On October 1, the Minister of Social Affairs, Denitsa Sacheva, announced that the possibility of opening a new window of 3 or 6 months will be discussed to transfer the second pension accounts from private funds to the National Institute of Social Security for people who have missed all the above deadlines.
Currently, by law, people born after December 31, 1959, who are about to retire, have the right to transfer their accounts from private pension funds to NSSI no later than 5 years before the date of retirement. For the first cohorts of women who will be entitled to two pensions, the term has expired, as the process will begin in September 2021.
Two pensions will be less than one
The need for the transfer arises because a few years ago the state recognized that for many people who will retire in the coming years, the two pensions – from a private fund and the NSSI – will be less as the final amount than the pension than the same. a citizen would receive according to the formulas of the National Institute of Social Security. By law, with the start of the payment of the second pillar pensions in September 2021, the pensions just granted by the National Institute of Social Security must be reduced by approximately 20-28%, and those of a private fund cannot compensate the reduction at all.
Therefore, under current rules, for many people who are about to retire in the decade after 2021, it can be much more profitable to move their accounts to the NSSI.
Former Minister of Social Affairs Lydia Shouleva, in an interview with bTV in plain text, advised low-income people to take this step to receive at least an amount from the National Institute of Social Security.
At a press conference on Friday, however, the Private Funds Association (BADDPO) explained that it is not okay for anyone to give general advice on transferring accounts to NSSI, since everything in the private pillar is individual.
Transfer to NSSI may not be profitable
At the same time, it became clear that there are entire categories of policyholders, for whom transferring to the NSSI will certainly not be profitable under the current rules.
“If low-income people transfer their accounts to the National Social Security Institute, there is a high probability that they will be completely damaged,” said Doverie CEO Daniela Petkova. The reason is that these people, even if they do not have full experience, are still entitled to a minimum pension from the National Social Security Institute (which is expected to be 300 BGN as of January 1, 2021) and there is nothing to reduce if not transferred. your account. In both cases, they will receive 300 BGN from the National Social Security Institute, but in one case they will lose their money from the private fund, even 1,000 BGN. According to official data, around 30% of the newly awarded pensions are minimal.
Another category for which this step would not be profitable are young people who are not about to retire in the next few years. The reason is that individual accounts in private funds are inheritable and if retirement is not immediate, it makes no sense for the citizen to transfer them to the National Institute of Social Security, where the inheritance is lost. “According to data as of September 30, 2020, the second pillar (UPF), which still does not pay pensions, has paid BGN 132 million to the heirs of deceased policyholders,” Petkova said.
The “richest” pensioners also have no interest in transferring their accounts to the National Social Security Institute. These are the people who would receive the maximum pension from the first pillar. Under current law, it also cannot be reduced by the reduction coefficient, BADDPO said.
According to official data from the pension funds, after the GERB reform in 2015, they have transferred nearly BGN 1 billion to the National Social Security Institute and the Silver Fund.
Transfer deadline must be waived
The Pension Association once again demanded that the state remove the restriction on the period for transferring accounts to the National Social Security Institute, so that the citizen can take that step until the last moment before retiring and make the best possible decision for himself. . “We don’t know why this restriction is that people cannot transfer their accounts to the National Social Security Institute after five years before the retirement date,” said Daniela Petkova.
The pension association hopes that the state will finally regulate the so-called payment phase of second pensions, so that it is clear what types of pensions people will be able to receive. However, if this does not happen by September 2021, the only possible option for the first cohort of women born in 1960 will be lifetime pensions. However, since many of them have minimal savings in their accounts, their second pension may be very low if it is paid for life. If the woman has been insured with the minimum insurance income without interruption for the last 18 years, she has an average of BGN 4,029 in her account (according to data as of June 30, 2020), which will have to be distributed over 21 years of hope of average life. women after retirement. If you were insured on average income, the funds will be BGN 13,436 and at most BGN 22,860.
As of September 30, 2020, private pension funds manage BGN 16.4 billion and, over a 10-year period, the average return is 3-4% per annum.
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