The new law on private pension funds comes into force, tax exemptions for contributions increase

2023-11-06 10:04:00, Kuriozitete CNA

The new law on private pension funds comes into force, tax exemptions for

At the end of last week, the new law "On private pension funds" entered into force.

The law was approved by the Parliament of Albania in September and published in the Official Gazette on October 20, while its content provided for entry into force 15 days after publication.

The new law will bring a significant increase in fiscal incentives for contributions to private pension funds. With the previous law, the maximum limit for tax benefits on contributions to private pensions is the smaller value, resulting from the comparison of the amount of 200,000 ALL and 15% of the member's gross annual income.

According to the new law, the maximum monthly limit of the tax exemption will be increased up to the level of the approved minimum salary, which has currently reached 40 thousand ALL per month. Since the tax exemption is linked to the minimum wage level, it is expected that this incentive will increase even more in the coming years. With the current level of the minimum wage, the amount of tax-exempt contributions would reach 480,000 Lek per year today, or 140% more compared to the current threshold of 200,000 Lek.

Even private pension contributions paid by the employer in favor of the employee will be exempt from tax to the same extent.

The law also provides that pensions are not taxed in the benefit for the part of the contributions, but only for the return on the investment, provided that the withdrawal is made with monthly payments spread over at least two years and not immediately, after fulfilling the legal conditions for private pension benefits.

In case of premature withdrawal of the pension fund (before fulfilling the legal conditions), the withdrawn value will be taxed at the legal rate of income tax (15%, according to the current law).

The law introduces for the first time a new form of private pension fund, the one with closed participation. A fund of this type can be created by an employer, several employers, or an entity organized as an employer association, trade union, trade union union or association, in the capacity of sponsor.

This fund is similar to professional pension schemes that are currently applied by some companies, but the difference is that in closed funds, participation is legally limited only to employees or members of the above entities.

Data from the Financial Supervision Authority (AMF) show that the total number of members in private pension funds in the middle of this year reached 37,594 members.

The number of fund members has expanded by 3% or 1,076 members since the beginning of 2023.

Despite steady growth in recent years, private pension penetration and the value of assets per member remain modest. Less than 3% of the total number of employees today contribute to a private old-age pension.

The value of net assets of pension funds in the middle of this year reached 6.19 billion ALL, increasing by 8.6% since the beginning of the year and by 20.7% compared to the same period last year. /Monitor