04.01.2022

10 TIPS WHEN INSURING FOR A SUPPLEMENTARY PENSION

10 tips are given by the experts of the Financial Supervision Commission for people when they are insured for a second pension.

- It is good to be familiar with the pension insurance system in Bulgaria.

- The care for our security in antiquities is becoming more and more our concern, not only the state.

If years ago we relied on the state for our future pension, now the responsibility for what pension we will receive is ours. A number of factors, including demographic, have led to the need to supplement the existing model of pension insurance, based on the so-called solidarity principle (pensions are paid from the collected insurance contributions to employees).

With the introduction of the supplementary pension insurance, based on the so-called capital principle, the aim is through the supplementary pension that the future pensioners can count on an income with which to maintain their usual standard of living. It is good to be familiar with the pension insurance system in Bulgaria, explain the experts from the FSC.

- Do not let someone else make a choice for you when the obligation to insure arises for the first time, for example, when starting a first job alone and in time to choose a universal pension fund. Choose a pension fund in which to insure yourself, up to 3 months after the initial start of work - under an employment contract, under a civil contract or as a self-insured person. If you do not make your choice within the specified period, you will be officially assigned to one of the funds operating in the insurance market. Choosing a pension fund is an important decision, so it is good to carefully consider where to insure.

- Before concluding a contract with your chosen pension insurance company, carefully read the rules for the organization and operation of the fund and read the insurance contract offered by the company.

The regulations of all pension funds managed by the respective pension insurance companies can be found on the FSC website, under the heading “Registers and references” -> “Electronic register” -> “Pension funds”. You can request a sample contract from the insurance intermediary or an employee of a pension insurance company - they are obliged to provide it to you. You can sign a contract directly in the offices of the company of your choice or through an insurance intermediary, but by submitting a notarized application.

- Insure for a pension on your real income!

The amount of the pension you will receive depends mainly on what income you have been insured for during your working career. You cannot count on a high pension if you have been insured on the minimum wage most of the time.

- You should know that with the supplementary pension insurance (based on the capital principle) you take investment risk.

As the funds in your individual account are invested in securities, bank deposits and real estate, the value of a share in the pension fund depends directly on the assessment of the fair value of these assets. Currently, it can both increase and decrease. Reasonable investment leads to an increase in the funds of the insured, but their constant growth is not guaranteed. Under the capital principle of insurance, entrusting your funds to a pension fund, you bear the investment risk yourself.

- Take an interest in your money and how it is managed!

Although at the moment you may perceive pension insurance as an additional financial burden, remember that your old-age security largely depends on it. The money you insure is yours and it is important how it is managed. Therefore, it is prudent to at least carefully review the information from the annual statement of your individual account. You should receive it in the mail every year until the end of May. From the annual statement you can find out what amount has been accumulated on the account (your account), what income has been distributed, what fees and deductions have been collected.

- The profitability of the pension fund is an important indicator of how and to what extent the funds of the insured are managed.

But you should know that the results achieved are not always a guide for future ones. This applies to both positive and negative returns.

In principle, the return is calculated for a certain period using the values ​​of one unit of the given pension fund at the beginning and at the end of this period. The funds in the universal, professional and voluntary fund are managed separately and the profitability is different. Pension insurance is a long-term investment that balances market fluctuations. Therefore, when, for example, researching or comparing the profitability of a pension fund, it is good to use longer periods as a basis. You can check the profitability through the FSC website or through the websites of the pension companies.

- Carefully consider the decision to transfer to a new pension fund!

If you are not satisfied with the pension insurance company and the fund in which you are insured, you have the right to transfer to a new one two years after the initial conclusion of the contract and every year after this period. You should proceed with this procedure after you have carefully considered all the pros and cons. For example, if the return on your pension fund this year is less than another fund, this is not always a good reason to transfer. The investment results achieved in the past are not a sure guide for future results and should not be assessed in the short term. You should know that the fee for transferring from fund to fund has been dropped.

- Contributing to a voluntary pension fund is a good way to take care of your future!

Caring for our future and financial security is increasingly our responsibility, not just the state's. We cannot count on the fact that after we retire, we will receive from the state a pension sufficient for our needs. That is why, while we are still active, it is good to think about the time when we will retire.

Financial advisers advise that voluntary pension insurance (the rest is mandatory by law) should start at the beginning of one's career. Adherence to the principle of "less but regularly" and for a long time usually gives good results.

Not to be overlooked is the fact that when you are insured in a voluntary pension fund, you can use tax benefits. Personal contributions for additional voluntary pension insurance in the amount of up to 10% of the monthly or annual tax base are not subject to taxation.