Банкеръ Weekly

Briefs

KEEP YOUR NONEY IN A PENSION FUND FOR AT LEAST TWO YEARS

The cutting off of preferences for pension funds has almost entirely deprived of sense voluntary insurance. The taxes and stoppages, imposed on the funds, are so great that they sometimes exceed their proceeds. Thus, an investment in an additional pension would make sense only if you use your money when you retire. Or at least after a sufficiently long period within which proceeds are heaped up (or a more far-sighted government relieves the tax regime).As of the beginning of 2003 the preferences for voluntary insurance were restricted for a second time. Thus, only 10% of the income can be reduced by the money, deposited in pension funds. (It should be noted that under the Corporate Income Taxation Act the employers are allowed to make monthly installments up to BGN40 at the expense of their employees, and this is often more than 10% of the wage.) Last year there were no restrictions concerning the amount to which the preference was applied. But after an epic battle it was decided that a 20% tax would be levied on the money when it is drawn from the fund, and this is more than the average income tax. In the final reckoning the regime for installments was closed both at the entrance and the exit.Thus, the enthusiasts, heaping money for a pension, have been left to count on the greater legislative guarantees, envisioned for the funds and on the convinience of having a guaranteed income one day. But they should be sure they won't need their money soon, in which case they may get less than they have deposited. The pension funds' yield is in the range of 6 to 9 per cent. An exception was the period when applications were collected for the mandatory universal funds, managing the new 2-percent installment of the people born after 1959, when the results were better. The present situation might be considered as normal, having in mind that the funds are obliged to deposit their money in low-risk financial instruments, which of course bring them lower yileds. For comparision we'll point out that the interest on government securities is already below 5 per cent.The problem is that pension funds' yields are extremely insufficient in view of the taxes, deducted from each installment. These taxes often reach 5% (although they've bgun to reduce them recently) and an initial deposit of BGN10 is due apart from them. Thus, if your fund has reached 8% yield, it will keep one tenth of it for the company which has established it, and will distribute the balance of 7.2% into your personal account. But still when the money was deposited, a 5% tax for management has been deducted (let's say nothing about the initial BGN10 tax). And if you decide to draw the money collected in your deposit after a year and a half, you'd be surprised to find that it has not increased. On top of all you'll owe a 20% tax on it.It is not difficult for anyone to calculate that its much more profitable to invest in government securities or bank deposits.

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