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Private pension funds that have existed in Serbia for 15 years have not met reform expectations - Serbia Business

Private pension funds that have existed in Serbia for 15 years have not met reform expectations

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Belgrade – Private pension funds that have existed in Serbia for 15 years have not met reform expectations, according to the analysis of the Fiscal Council on the work of these funds in our country introduced to provide additional income in old age, as an addition to the state system that remains the main source of pension income .

As the main objection, the Fiscal Council states that the current investment policy, which predominantly relies on government bonds, is not able to provide depositors with satisfactory rates of return that were negative in real terms in the previous two years, -0.3 percent in 2020. and 2021. – 6.1 percent.

He also points out that despite generous and exclusive tax reliefs, pension funds have failed to break into the labor market, as shown by data that less than 10 percent of workers have open accounts, while only three percent save regularly in pension funds.

In order for these funds and voluntary pension insurance in Serbia to function better, more people to save in them, and yield rates to be higher, the Fiscal Council, based on international experience in this area, recommends several changes.

The first is to abolish the limit that only 10 percent of assets can be invested abroad, then to provide guarantees of positive nominal returns to funds that want to invest exclusively in government bonds, with multiple reductions in fees charged by savers.

The Fiscal Council also believes that the existing regressive and generous tax breaks should be replaced by more modest and progressive direct budget subsidies.

When it comes to substantially expanding the coverage of pension savings, it requires, as stated, a radical change in the existing system and active state intervention to eliminate the immanent shortcomings of the market of private pension funds.

According to the Fiscal Council, the tender selection of a private investment company that would passively invest pension savings on international stock exchanges, in order to achieve optimal returns for savers, with minimal costs, would also improve.

Investment portfolios should be progressively transferred to government bonds starting 10 years before retirement age in order to avoid the risk of losing savings due to stock market volatility, and part of the funds would be passively invested in the Belgrade Stock Exchange and government bonds.

This would stimulate the development of domestic capital markets, according to the recommendations of the Fiscal Council.

Employee participation, according to the recommendations of the Fiscal Council, would be voluntary, while the state could support the new system with potential guarantees of return on investment and automatic registration of workers.