With a shrinking and aging population, pensions are one of the biggest social and economic challenges for Albania in the long term. Private pensions are one of the alternatives that are thought to ease the burden of the public scheme, in the long term, but which still remain very small in Albania.
Statistics show that the number of individuals contributing to a private pension is only 33 thousand, while the total net assets of private pension funds are only 35 million euros. Currently, the number of individuals contributing to a private pension is 4.2% of those paying contributions to the mandatory state scheme and approximately 2.7% of the total number of employees (based on the Labour Force Survey).
The Financial Supervisory Authority (AMF) has prepared a new draft law, which aims to make investments for a private pension in old age more attractive. The AMF proposes increasing the tax exemption for both employee and employer contributions, while requiring that pensions not be taxed on the benefit of the contribution portion, but only on the return on investment.
The draft law has already been forwarded to parliamentary committees for discussion and aims to:
- Developing the private pension fund market through increasing participation in the scheme;
- Providing an additional pension, which supplements the basic pension provided through the public pension scheme;
- Well-informed decisions of individuals regarding the collection of their retirement savings;
- New opportunities for employers regarding the creation of private schemes for their employees;
- Increasing product quality and customer service through the good management of private pension funds by management companies;
- Promoting competition in the best interest of fund members.
- Employers are more inclined to set up private schemes for their employees, leading to increased participation in private pension funds.
We recall here that the current law on private pension funds dates back to a time when these funds were in the embryonic stage of development and had negligible dimensions.
In recent years, the market has been growing rapidly, but its size in terms of number of members and value of assets still remains small.
Currently, the Private Pensions financial market, although with a modest weight to Gross Domestic Product, during the first 9 months of 2022 marked an increase of 7.29% compared to 2021, reaching a total net assets of 5.4 billion lek.
The assets of this market are invested mainly in Albanian Government bonds and, unlike the state pension, it is inheritable.
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